There are continued signs of recovery in Latin America’s economy. Brazilian GDP expanded by a seasonally-adjusted 1.9% q/q in Q2, while more timely data suggest that Mexico and Chile returned to positive growth in Q3. But with all economies in the region set to operate below their potential growth rates of 3-5% over the next two years, inflation looks likely to fall further over the coming months and quarters. This will allow policymakers to keep interest rates low for a sustained period. We do not envisage rate hikes much before Q4 2010.
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