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Colombia Hikes Rates, Chile’s Industrial Production Contracts

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Colombia’s central bank hikes rates

Colombia’s central bank increased the benchmark interest rates for the 11th consecutive meeting by 25 basis points. This brought the rate to 7.8%—in line with market expectations. A continued rise in inflation levels, driven higher by a depreciating Colombian peso, contributed to the decision to tighten the monetary policy. Food prices have also been steadily increasing in the Latin American economy. This increased concerns about El-Nino. The central bank’s governor, Jose Dario Uribe, made the decision despite a plea from President Juan Manuel Santos to not raise the rates more due to concerns about economic growth and the rising unemployment rate. Colombia’s unemployment rate rose from 8.8% to 8.9% in June. The iShares Latin America 40 (ILF) and the iShares MSCI Emerging Markets (EEM) rose by 1.9% and 0.51%, respectively, on July 29.

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Chile’s industrial production contracts

Industrial production contracted in Chile’s economy on an annual basis by 3.8%—compared to a 2.0% fall in the previous month. The fall was driven by a decline in manufacturing production—it was 2.4% lower on an annual basis in June compared to a 2.1% rise in the previous month. Speculations are increasing that the Central Bank of Chile will remove the tightening bias on the monetary policy kept to withhold inflation levels. Rising interest rates can deter investments and downplay recovery in the Latin American economy. Growth in consumer spending was positive. Retail sales rose by 1.1% on an annual basis in June—compared to a 0.6% rise in May. The iShares MSCI Chile Capped (ECH) and the iShares MSCI Brazil Capped (EWZ) rose by 0.65% and 3.2%, respectively, on July 29.

Mexico’s economy slows in June

Mexico’s economy contracted by 0.3% in 2Q16 on a quarterly basis—compared to a 0.8% rise in the previous quarter and expectations of 0.1% growth.

On an annual basis, the Mexican GDP rose by 1.4% in June—slower than 2.4% estimated growth and an increase of 2.6% in the previous month. The reading was the lowest since 4Q13. It was weighed down by a contraction in industrial output. The iShares MSCI Mexico Capped (EWW) rose by 0.32% on July 29.

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