A more dovish tone from the U.S. Federal Reserve has provided some relief to its southern counterparts, with expectations for several Latin American countries' own rates showing signs of stability.

The Fed on March 20 held its benchmark interest rate unchanged and signaled that its next rate hike may not come until 2020, marking a substantial reversal from its stance in 2018.

For Latin America, the Fed's pivot "should promote interest rate and currency stability in the region's larger economies that have well-anchored inflation expectations," Moody's noted in a March 25 report, pointing specifically to Brazil, Mexico, Colombia, Chile and Peru.

More broadly, Moody's noted that the Fed's expectation to hold rates flat will support funding conditions for Latin American borrowers, both by lowering capital flow and currency volatility risks, as well as by offering "greater room for central policy rates in Latin America to adjust to domestic economic trends."

As data compiled by S&P Global Market Intelligence shows, interest rate expectations for several key economies already have started to ease, with forecasts showing some rates holding steady and others even declining. Still, there are marked variations from country to country.

Colombia

Banco de la República has held its interest rate untouched at 4.25% since April 2018, given signs of subdued inflation at roughly 3.15% and somewhat fragile economic growth. Going forward, financial experts expect one or two hikes in the monetary stance, forecasting its interest rate to finish the year at 4.5%, according to the latest survey by the regulator.

Chile

Among the lowest rates in the region, Banco Central de Chile raised its interest rate by a quarter-point to 3.0% during its first meeting of 2019, signalling a gradual pullback from an accommodative monetary policy as the economy has started to gain momentum after two years of sluggish growth. Though inflation eased to 2.6% in 2018, closer to the lower end of the central bank's target of 2% to 4%, the regulator believes economic conditions call for a slow reduction of its monetary stimulus. Markets still expect to see one more hike this year, though.

Peru

Banco Central de Reserva del Perú has kept its benchmark rate unchanged at 2.75%, the lowest in the region. Though official estimates for the interest rate expectations are not publicly available, the country's banking association believes the central bank will maintain an accommodative stance, forecasting just one rate hike in the second half of 2019.

Brazil

Banco Central do Brasil's benchmark rate, the Selic, has sat at a historical low of 6.50% for nearly a year. The central bank's monetary board has met twice since Jair Bolsonaro took over as President at the start of the year and both times stayed pat as inflation has held below 4%. While markets recently thought rates would rise again in 2019 — up to an 8.0% rate by year-end — they now see that 6.50% rate holding for the balance of 2019. Some participants even believe a rate cut is possible in order to help support Brazil's recovering economy.

Mexico

In an effort to control inflation, Banco de México has implemented a series of rate hikes in recent years that brought the benchmark rate to a 10-year high of 8.25%. While the central bank recently announced that it would eliminate its virtual peg to the U.S. Fed's decisions, markets expect it to hold rates steady for the rest of 2019, and potentially begin to lower in 2020 as inflationary pressures ease.

Argentina

Faced with an acute inflationary crisis and exchange rate volatility, Banco Central de la República Argentina's monetary policy has shifted substantially in the past year and now is enacted mainly through daily auctions, not monthly committee meetings. The benchmark rate has fluctuated drastically as result, and was topping 66.9% as of March 26. Investors expect the monetary rate to gradually decrease to 37.0% by year-end, but projections are rapidly changing as inflationary trends oscillate.

Enjoyed this analysis? Click here to set up real-time alerts for data-driven articles on any region of interest.