Interest rate hikes in the region are drawing near. It’s a close call, but we expect the Central Bank of Brazil to stay on hold this month and begin raising interest rates in April instead. Peru and Chile will be next in line – we expect hikes by June – with policymakers in Colombia now likely to wait until Q3 before raising rates. But while the region’s recovery is likely to impress during the first half of the year, we still expect it to lose some steam over the second half of the year and into 2011. Accordingly, the aggressive hikes now priced into forward markets are unlikely to materialise. We expect a more modest pace of tightening and think that Mexican rates will remain at their current record low throughout this year.
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