@kira I'm European, the term does not feel offensive to me, however it's a very strange way to refer to people which I would not use. I believe it's a term mainly used in North America, and I have no idea whether it has an offensive connotation there.

Regarding being racist that's opinable. Frankly, to me, the idea of the existence of a South American race, even if you believe races exist, is just plain stupid. People over there are mainly descendants of European colonizers, that happened quite recently and I don't believe anyone would argue enough time passed to form a distinct race.
However, in the United States I do believe it does have a racist connotation: I have applied for a few jobs positions and they always ask you about your race, as far as I understood it it is required by law.
They plainly ask you "select your race" and you have several choices, if I'm not mistaken it's generally - White (not Latino) and White (Latino).
In this case the word does have a racist connotation, it implies that Latino is a race of white people.
I do not think it's offensive per se, but I always found it funny to receive these questions regarding my race.