Following a wave of reforms that granted more autonomy and clearer mandates to many of the central banks in the 1990s, Latin America's monetary policy brought inflation under control in part by putting an end to the noxious habit of printing money to finance public deficits. Today, managing the benchmark interest rate allows most of the region's authorities to keep consumer prices stable.

(Venezuela, suffering soaring hyperinflation of 25,000%, is an outlier.)

With many of the region's economies in recovery mode, however, policy makers walk a fine line between an expansionary monetary policy that can stimulate the GDP or a restrictive one that can protest the most vulnerable segments of the population.

And while favorable external conditions have fueled the ongoing economic recovery of the region - creating the conditions for the monetary authorities to lower interest rates without risking major depreciations of their currencies - a reversal of this trend would spell trouble for the central banks. 

"In the event that the U.S. Treasury yield steepens significantly for reasons other than stronger economic growth, or the dollar starts to strengthen, the associated increase in risk premia in Latin America would put pressure on central banks to either increase interest rates or accept weaker exchange rates," said Elijah Oliveros-Rosen, Latin American economist at S&P Global.

Furthermore, the implementation of the appropriate monetary policy stance in Latin America is made more complex in a year of presidential elections and economic turbulence, including a run on one of the region's main currencies. In fact, the Argentine peso crisis cost its central bank president his job on June 15.

BNamericas talked to experts about the different mandates and monetary policies driving the region's main economies.


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