If there were any fears that the EM assets boom seen over the past year – particularly in fixed income – could peter out as valuations get stretched, they have been more or less put to rest by Ben Bernanke’s latest actions. The chairman of the US Federal Reserve on Wednesday announced another round of monetary easing, a move that will add to the flood of hot money that has been making its way to EM assets. Continue reading »
By Jonathan Ostry of the IMF
It did not take long after the announcement by the Federal Reserve to engage in a third round of quantitative easing – action warranted by continued economic weakness – for emerging market countries to react. Brazil led the charge, denouncing the action as “protectionist” and predicting that it would reignite “currency wars.” Perhaps less expected than Brazil’s comments were those of Korea’s central bank, which expressed worry that the resulting inflows were “expected to lead to huge difficulty in managing capital inflows.” On the other hand, not all emerging market countries seem unhappy about inflows. India, for example, liberalized its capital inflows regime in the wake of the Fed’s action, in sharp contrast to Brazil’s threat to exercise its option to tighten capital controls if the challenges of managing inflows became too great. Continue reading »
By Márcio Garcia of PUC-Rio
Yesterday’s beyondbrics post “Quantitative easing, Brazilian style” argues that, with massive sterilised foreign exchange (FX) purchases, Brazil is performing a sort of quantitative easing. Is this argument valid?
Quantitative easing (QE) is a monetary policy tool conceived to revive moribund economies. Central banks resort to QE when the nominal interest rate attains its possible minimum: zero. Neither the motivation (a very weak economy), nor the attainement of the zero lower bound (ZLB) characterize the Brazilian recent past. Continue reading »
Mirror, mirror on the wall, who’s the biggest quantitative easer of all? Brazil has long accused governments in the developed world of using loose monetary policy to pump up their economies and get a competitive edge. But it may be time for Brazil to reflect on its own actions over the past five years. Continue reading »