Banco de Brasil

Claire Jones

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.

During that time, Brazil has received huge capital inflows, pushing its foreign reserves from about $80bn at the end of 2006 to about $380bn today (see chart below). The central bank says it has “sterilised” those potentially expansionary and inflationary inflows by selling government bonds – standard practice at central banks around the world.

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While Brazil surprised the markets with a bigger-than-expected interest rate cut, South Korea and Indonesia on Thursday delivered exactly what had been predicted. 

The Bank of Korea and Bank Indonesia both left rates unchanged – in a clear sign that concerns about the impact of rising oil prices on inflation are matching worries about the threats to global growth coming from the eurozone. It’s a striking shift for Indonesia, which has – like Brazil – been a standard-bearer for aggressive pro-growth rate cuts.

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Claire Jones

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BofE

The Bank of England’s financial (in?)stability report is due out on Thursday. Read more

Claire Jones

The dip in the price of gold in early autumn failed to do much to dampen demand from the central banks. In fact, their buying rocketed. This from the FT’s Jack Farchy:

Central banks made their largest purchases of gold in decades in the third quarter, as a sharp drop in prices in September accelerated the shift to bullion as a means of diversification.

The scale of the buying, at 148.4 tonnes on a net basis, was far bigger than previously disclosed, surprising some traders.

 

The report by the World Gold Council, industry lobbyists, on which the story is based confirms a few of Money Supply’s earlier suspicions about why central bank demand would to remain strong, or even rise, on the back of the dip in price. Read more

A bill making its way through Brazil’s Senate confirms what many economists have suspected for a while. Politicians in Brasília are preparing to widen the central bank’s mandate to focus not just on inflation but also on economic growth and employment creation.

At issue is the credibility of one of the central pillars of Brazil’s economic prosperity for more than a decade – the inflation-targeting regime. The bill, which was approved by the powerful economic commission of the senate this week and now must go to the full Senate and the lower house, is sponsored by Senator Lindbergh Farias of the governing Workers’ Party.

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Claire Jones

The Central Bank of Brazil shocked markets in August by lowering its benchmark rate to 12 per cent. Will it cut again this Wednesday? Analysts expect so.

The Central Bank of Turkey, another of the emerging market central banks that has been taking economists by surprise by loosening policy, votes on Thursday, as does the Central Bank of the Philippines. Read more

Claire Jones

Luckily for this blog, monetary policy is no longer as “boring” as Sir Mervyn King would like.

Still, it remains predictable enough that economists are rarely surprised by decisions. Especially for those central banks that target a certain level of inflation. Recently, however, most have been getting it spectacularly wrong on some of the key emerging market votes, notably Turkey’s and Brazil’s rate cuts.

They might have called it right had they read this collection of papers, published by the Bank for International Settlements yesterday.  Read more

Claire Jones

The Bank of Israel – one of the first to raise rates following Lehman Brothers’ failure – on Monday became the latest to override domestic price pressures and cut on the back of concern over the global outlook.

Following the lead of the central banks of Turkey and Brazil before him, Stanley Fischer, the Bank’s governor and  sole rate-setter, shaved a quarter point off Israel’s benchmark interest rate to leave it at 3 per cent, despite inflation rising by half a percentage point to 3.4 per cent last month, above the 3 per cent upper limit of the inflation target range.

Public outcry at high inflation – particularly food price pressures – has inspired Facebook groups that have attracted over 100,000 members. And rising house prices have prompted more than a quarter of a million Israelis to take to the streets. (The central bank maintains that its measures, along with more house building, will slow the pace of house-price inflation).

Growth – at 2.4 per cent in the second quarter (annualised) – is relatively high, and unemployment – at 5.5 per cent – low.

All of which has meant that analysts – the vast majority of which had forecast a rate hold – were taken aback.

So why has Mr Fischer cut rates?  Read more

Claire Jones

Rate decisions

Next week sees a host of central banks vote on monetary policy.

The Reserve Bank of Australia’s board is expected to hold rates on Tuesday. On Wednesday Sweden’s Riksbank, the National Bank of Poland, the Bank of Japan and the Bank of Canada are all set to vote. Read more

“Give me a one-handed economist!” President Truman used to ask. But look around the world at the moment, and it is divided between economists offering the kind of “on the one hand, on the other hand” advice that so exasperated Truman.

Brazil’s central bank clearly did not feel sitting on the fence was an option. It has just delivered a surprise 50 basis point cut. Financial markets’ parsing of this unexpected move is that Brazil believes growth rather than inflation is its biggest concern. This has prompted economists at HSBC to wonder who might be next. “Will everyone now go Brazilian?” it asks.

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