Spotlight: L. America first to feel chills in Fed rate hike

Latin America has been among the first to feel the chills brought over by the U.S. Federal Reserve's interest rate rise earlier this week.

They now understand that a decade of loose monetary policy in their close neighbor is coming to an end and all those who stocked up on dollar-denominated debt over that time will feel the squeeze.

A day after the announcement on Dec. 16, the central banks of Mexico and Chile quickly followed suit, raising their own interest rates by 0.25 percent.

The Bank of Mexico was clear about why it did so, stating that "in the absence of the adjustment in our own interest rate, (this) could generate additional depreciation ... and affect inflation expectations."

Chile's central bank President Rodrigo Vergara said that the hike would not stop "inflation from rising above 4 percent ... and staying there for several months during 2016."

Mexico and Chile have acted wisely as the risk of capital outflows is a very real one whenever the U.S. tightens its monetary policy, said analysts.

In 2013, the Fed eased off on certain monetary policies, such as large purchases of mortgage-backed securities, which triggered a raft of outflows from emerging markets.

The Bank of Mexico's move "was to reduce the rate differences with the U.S., which could have led to capital flight and more volatility on the Mexican financial market," Gabriela Siller, director of economic analysis at Banco BASE, told Xinhua.

Unlike Chile and Mexico, Brazil has not immediately raised its interest rates.

With its economy expected to shrink by 3 percent in 2015, Brazil has also seen inflation reach its highest point since 2003 and the real slide by well over 30 percent against the U.S. dollar.

According to Fanthom Financial Consulting based in London, Brazil now stands as the "most vulnerable of all emerging markets to a Fed lift-off."

The squeeze will hit Brazil across both its private and public sectors. The Fed's years of easy money made borrowing in U.S. dollars attractive to Brazilian private companies in need of leveraging.

This means that the start of a series of hikes in the U.S. will make Brazil feel the pinch when it comes to repayment time. Furthermore, the risk of capital fleeing to the U.S. will now grow sharper.

The good news for Brazil comes from its broad foreign reserves. This should allow Brazil to see off its short and medium-term public debt obligations.

The new Argentinean government of Mauricio Macri decided to take an abrupt move by removing capital controls the same week as the rate hike. This saw the Argentinean peso devalue by 30 percent against the U.S. dollar in one day.

Some Argentinean experts have indicated that the devaluation of the peso would lead to a sharp increase in prices, meaning the cost of this financial maneuver would be passed on to consumers.

In Venezuela, the rate hike was not welcomed by President Nicolas Maduro who blamed it for causing crude oil prices to drop even further.

Shortly after the Fed's announcement, oil prices slid 3 percent. Maduro said the U.S. is using the rate hike to manipulate oil prices. Endi