Central bank scorecard: Steady hand

Sep 25, 2013

Latin America’s central banks have had a tough year navigating volatility amid slowing growth, falling currencies and capital outflows. Over the past year, Mexico stands out for its handling of the challenges

By Karen Schwartz

Central banks in Latin America have not had it easy over the past twelve months. For the first half of that period, authorities took action against rampant capital inflows, sharply appreciating currencies and, in some cases, overheating economies.

US Federal Reserve chairman Ben Bernanke ended that when he hinted in May that the central bank might roll back its bond buying program before year-end. This triggered a dramatic sell-off in global emerging markets.

For policymakers, the risk framework was suddenly flipped. Latin currencies weakened sharply. This coincided with weaker growth in China, which was already weighing on commodity prices and GDP projections, especially for Latin America’s natural resource exporters.

Yet, broadly, Latin America’s central banks had ample room for maneuver, having managed the post-crisis recovery for the most part with aplomb. Adapting was perhaps easier for many of the region’s better performers, thanks to years of sound...

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