Capital controls back on the agenda

Latin America’s floating currencies have bounced back strongly after a brief wobble in May and, with the notable exception of the Mexican peso, most now look expensive relative to ‘fair value’. Concerns about the competitiveness of non-commodity exporters are building and any further appreciation from here will provoke an increasingly strong response from policymakers. But while this will probably stabilise the region’s currencies (and thus limit any further upside) it is unlikely to weaken them substantially. For this to happen, the best hope may be that commodity prices drop back over the next six months or so.