Scoring South America: A Rock And A Hard Place

  • Thursday, September 10, 2015

chile

The decline of the Brazilian real has hogged the headlines, but currencies values across Latin America– most notably in both Chile and Columbia–have plunged over the past year.

In light of their suffering currencies, regional central banks have adopted a defensive stance, one which Prattle’s algorithm has scored at a slightly hawkish 0.17 (which we round to an integer). A signal to the markets that South American central banks are willing to tighten policy to protect their currencies, this hawkish mood, while subtle, should be in the minds of market players invested in this region.

South American Mood

The possibility of contractionary monetary policy is somewhat mitigated, however, by the risks disinflationary pressure can pose to a struggling economy: contractionary policy, while protecting a currency, can jeopardize growth. A rate hike seems particularly unlikely in Brazil, whose economic woes have only grown of late. Stuck between equally pressing concerns, Latin America’s central banks inhabit an ambivalence born of compromise.

Bottom Line: In the midst of currency value slides, South American central banks feeling a little hawkish, but, until they are willing to risk slowing economic growth, it seems unlikely that they will act on those feelings.

The Prattle Team,
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Every week the Prattle team will be publishing its take on a global central bank region. There are 4 regions–European, North American, South American, and Asian–and the regions will be scored based on our analysis of all the central bank communications in that region over the past week. Indicating the “hawkishness” or “dovishness” of the region, the scores will be given in integers ranging from -2 to +2 where -2 is extremely dovish and +2 is extremely hawkish.

For more precise scoring on individual banks, speakers, and communications, you can reach out to Prattle on our contact page or through this link.