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Investing.com -- BofA Securities in a note dated Monday said that expected interest rate cuts by the Federal Reserve will likely open the way for central banks in Brazil, Colombia, and Mexico to ease borrowing costs in the coming months.

The Fed is projected to lower rates by 125 basis points through the end of 2026, beginning with a 25 basis-point cut as soon as September 2025, according to BofA’s US economics team.

“Lower short-term rates in the US facilitate cuts in LatAm, especially in Mexico, which has an economy more linked to the US one,” the brokerage said.

Brazil, Colombia, and Mexico currently hold some of the highest policy rates among major economies in the region.

Brazil’s benchmark stands at 15% (11% in real terms using BofA’s year-end 2026 inflation forecast), Colombia’s is at 9.25% (6.25% real), and Mexico’s is at 7.75% (4.25% real).

These levels are well above estimates of neutral rates by their respective central banks.

BofA forecasts that rates in all three economies will fall significantly by the end of 2026: to 11.25% in Brazil, 7% in Colombia, and 6.50% in Mexico.

The brokerage cited subdued global inflation pressures, weak growth in the US and China, and limited upside in oil prices as factors that should allow monetary easing in the region.

“We do not expect significant global inflation pressures for LatAm in the next several quarters,” BofA said, adding that cheap Chinese goods are “helping put downward pressure on global goods inflation.”

In Brazil, the Central Bank is expected to begin cutting rates in December 2025, ahead of consensus expectations for January 2026.

BofA projects an aggressive easing cycle that would bring the benchmark down to 11.25% by December 2026.

“The consolidation of the downturn in economic activity favors our call of a rate cut by the BCB in December,” the brokerage said, pointing to slower growth and easing inflation.

Risks include looser fiscal policy, potential depreciation of the real, and geopolitical tensions that could unsettle markets.

In Colombia, BofA reiterated its out-of-consensus call that the policy rate will reach 7% by end-2026, below the 8.5% implied by market pricing.

The next 25 basis-point cut, however, has been pushed back to December 2025 from September, after the central bank signaled concern over strong domestic demand and recent minimum wage hikes.

“We do not believe domestic demand is very strong,” BofA said, arguing that recent growth was fueled by temporary factors such as wage policy and remittances.

Mexico’s central bank, which has already lowered rates to 7.75% after a series of cuts this year, is expected to take the benchmark further down to 6.5% by the end of 2026.

BofA said weak economic activity, a negative output gap, modest job creation, and a relatively strong peso will keep both headline and core inflation below 4% next year, giving Banxico space to ease.

“Fed cuts further support our case,” the brokerage said. Risks include persistent core inflation driven by wage growth and the impact of tariffs on Chinese imports.