Pretty Peso: Impacts of US and European Monetary Policy in Latin America

In this episode of Plaza Central, host Benjamin Gedan speaks with Alejo Czerwonko, chief investment officer for emerging markets in the Americas at UBS, and Gabriela Soní, chief investment officer for Mexico at UBS, about the impacts in Latin America of rapidly rising interest rates in the United States and Europe.

Selected Quotes

Alejo Czerwonko

Global liquidity is tightening and it’s tightening quite fast. The US Federal Reserve began increasing interest rates in March of this year for the first time since 2015. Fed Chairman Jerome Powell recently spoke at a widely followed conference in Jackson Hole, he delivered brief, clear and pragmatic remarks. In short, he emphasized that the Fed must keep increasing interest rates until the job of containing inflation is done and he indicated that a rather long period of tighter liquidity may be needed to bring inflation in the US under control.

Gabriela Soní

Relative to other historical episodes, the region appears somewhat better prepared to weather the global monetary tightening without suffering sizable financial market stress. The main reason is that Latin American central banks started to raise interest rates well ahead of the Federal Reserve, up to one year in the case of Brazil, and nine months in the case of Mexico, for instance.