Latam | Estimating R* for selected LatAm countries

Summary

In the post-pandemic period, amid a resurgence in inflation and elevated global debt levels, the debate over the level and trajectory of the neutral interest rate (r*) has resurfaced. This analysis explores this question for a selection of Latin American countries.

Key points

• Key points:
• Estimating the neutral interest rate (r*) is inherently complex, as it is an unobservable variable that requires a long time horizon to accurately identify its cycles and underlying determinants.
• The main factors influencing the level and trend of the neutral rate (r*) include global benchmark rates, demographic dynamics, productivity growth, risk premia, and, in some cases, terms of trade.
• In Latin America, the neutral interest rate (r*) has exhibited an upward trend in recent years, in line with rising global rates and increasing investment needs for the region.
• The analysis indicates that, despite the recent easing cycle in policy interest rates, the monetary stance remains in contractionary territory in the analyzed economies.

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