Latin America Economic Research

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Latin America Economic Research

ing toward equilibrium, though it cautions that change, but the foundations of household consumption have

the macroeconomic outlook remains unusually uncertain. The weakened. Policy remains data-dependent, assessed on a

Middle East conflict has not been definitively resolved and meeting-by-meeting basis. The midpoint of the corridor

global oil supply has not normalized. At the same time, while points to a hold over the coming quarters. The bounds define

recent activity has been weighed down largely by transitory two risk scenarios. The lower bound reflects softer domestic

supply-side shocks and the demand outlook has not materially demand, which would require a more accommodative stance.

changed, key drivers of household consumption have soft- The upper bound captures more persistent inflation, which

ened. would call for tighter policy to ensure convergence to target.

This latter scenario is somewhat closer to our own base case.In this context, lower crude prices give the Board room to

refocus on weaker-than-expected activity so far this year. Pol- With June CPI likely to print in deflationary territory

icymakers reiterated that the future path of the policy rate will (see note) and the Board signaling little concern about core

be decided on a meeting-by-meeting basis, even as inflation price dynamics, we see no need to alter the policy stance this

risks have eased materially. Attention now turns to the 2Q year. That said, we remain constructive on a pickup in ex-

Monetary Policy Report, due tomorrow, which should pro- mining activity in the second half. Lower crude prices should

vide further guidance and likely extend the expected period pass through quickly to households via cheaper gasoline,

on hold.