The Bank for International Settlements published BIS Bulletin No 113 on how financial conditions indices (FCIs) are constructed and used in Latin America, and what they imply for monetary policy transmission. Using a unified FCI methodology for Brazil, Chile, Colombia, Mexico and Peru, the Bulletin finds that foreign and global factors dominated financial conditions between January and July 2025, with local-currency appreciation against the USD and a decline in the broad USD index materially loosening conditions across the region. The analysis highlights that FCIs can send conflicting signals across providers because of different modelling choices, particularly around the role of risk-free rates and exchange rates. It contrasts widely used Goldman Sachs FCIs, which typically imply that local-currency depreciation against the USD eases conditions, with Latin American central bank FCIs that generally find depreciation tightens conditions, producing opposite diagnoses during episodes such as the Covid-19 shock in Brazil and Mexico. The Bulletin also documents variation in central bank FCI practices, including differences in publication frequency, transparency and public availability of data, and attributes much of the cross-country divergence in 2025 to domestic policy and risk-premium developments, alongside an April tightening associated with higher sovereign and corporate credit risks and elevated global volatility. On monetary policy implications, panel evidence for the five countries suggests that policy moves transmit to the real economy through financial conditions in the short run, with a one standard deviation tightening of the FCI associated with a 0.5 percentage point decline in the pace of GDP growth after one quarter. The Bulletin notes that FCIs do not by themselves identify whether shifts in financial conditions are driven by supply- or demand-side forces.

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