translated from Spanish: Mexico cuts interest rates: why in Latin America the cost of credit falls and how it can affect you

Amid a global economic slowdown, Latin America is lowering interest rates.
Some of the region’s largest economies took the path of lowering the value of money this year, which in practical terms translates into how much it costs to lend and how much it costs to borrow.
Basically a rate cut lowers the cost of credit.
That’s why the decisions made by each country’s central banks directly affect businesses, people and the economy as a whole.
On Thursday, the Central Bank of Mexico cut rates again by 25 basis points, leaving them at 7.75%, after falling in August for the first time in five years.
Peru has lowered them by 25 points, while Chile and Brazil have gone much further, cutting interest rates by 1% (100 basis points).
“Inflation has fallen in the region,” William Jackson, chief emerging market economist at London analytics firm Capital Economics, tells BBC World.
“This has provided coverage to central banks in Latin America to cut interest rates,” Jackson explains.
“Another very important reason is that economic growth is very weak in Latin America.”
“These factors are likely to involve further reductions in much of the region for the rest of this year and in 2020,” the economist projects.
The weight of uncertainty
Alfonso Esparza, senior analyst for Latin America at Oanda, says the region is following the global trend of rate cuts.
“The trend is clearly downward. Regional inflation is teenuing, the price of oil has kept prices low and within the goals set by central banks,” explains in dialogue with BBC Mundo.
“Brazil made more aggressive cuts, while Mexico has been more cautious,” in a context in which both countries “have been on the verge of recession.”
Latin American economies, he adds, “are feeling the effect of the U.S.-China trade war and the uncertainty is likely to continue next year.”
Exceptions
No doubt the world stage plays a key role.
“Developed countries are lowering interest rates and global growth is slowing,” two factors that directly impact Latin American economies,” World Christian Lawrence, an analyst at analytics company Rabobank, tells BBC Mundo, analysis company rabobank, in New York.
“In the case of Chile and Peru, the trade war has weighed on their economies, as copper prices have fallen.”
And Mexico has been affected by “the slowdown in the U.S. manufacturing sector, combined with continued trade uncertainty,” Lawrence explains.
All in all, there are exceptions. One of them is Colombia, which faces high inflation and pressures on its currency, leaving it less room to lower rates.
In fact, analysts consulted for BBC Mundo argue that the country will raise rates in the coming months.
The other big exception is Argentina, which with gigantic inflation probably won’t cut exchange rates either, experts say.
How can it affect your pocket?
Rate cuts are an incentive for people to increase their consumption (for example, by asking for credits to buy a car or a home) and for companies to ask banks for money and invest.
All with the idea of energizing economies to underpin growth.
On the other hand, for those who are already in debt (and their debt varies according to interest rates), it is a benefit.
What can consumers expect in day-to-day prices?
“There may be a rise in the prices of products imported from abroad,” as a bit of purchasing power is lost, says Alfonso Esparza.
This can affect countries that rely heavily on imports.
Conversely, “as the local currency depreciates, exports become more attractive.”
What is not known is the extent to which interest rate cuts will lift economic activity in the region, as there are many other factors influencing the direction of economies.

Original source in Spanish