The Central Bank’s murky mandate

Just what is the Central Bank playing at?

The fashionable question of the day in Brazil’s economist circles is whether the Bank has tossed in a dash of GDP growth to its inflation-targeting menu. The latest rate cut leaves the Selic inter-bank rate 3.5% lower than last August with more to come (see blog of May 4). That risks a spike in inflation, squeal many economists, asset managers and the like.

These naysayers claim that the Central Bank has become unpredictable in its monetary policy decisions, that its newish President Alexandre Tombini (appointed by Dilma Rousseff at the start of her mandate last year) is in hock to the Ministry of Finance, and is putting long-term stable growth on the line for short-term GDP gains. A recent Bloomberg survey did indeed find that the Brazilian bank has become the most unpredictable among the world’s top 10 economies.

Not so, cry Tombini and his supporters. Lower global growth and weak Brazilian manufacturing and credit data in the first quarter justify the rapid monetary policy loosening that still leaves Brazil with some of the highest real rates in the world.

For now, data bear the Tombinists out as inflation has been steadily coming down with economist expectations at 5.12% this year. Indeed, the Central Bank may lower the limbo pole still further and go for a Selic rate of 8.5%.

If Tombini’s right that the Brazilian economy will just grind along and inflation remain a wet rag, as seems more likely every day with the dismal news from Europe, these lower rates could become a permanent feature in hyper-inflation ravaged Brazil. That would position Tombini, like Fed boss Alan Greenspan, as the great champion of the credit economy. It remains to be seen if he knows when to tap on the brakes.

About admin

I've been researching and writing on Brazilian financial markets, industry and economy since 2006 for a wide range of specialist media, consultancies and investors. Before that I spent over 10 years in London and New York writing for and editing magazines and journals dedicated to finance, investment and economics in developing markets, mostly for the Euromoney Institutional Investor group and Thomson Financial. Areas of coverage Below are samples of areas that I cover and some of the common themes that I investigate. Capital markets BM&FBovespa markets *capital raising trends: via equities (IPOs and secondary issuance), debt and loans *the asset management industry: legislation and coverage of the key hedge, pension and investment funds * corporate governance: how the regulator is seeking to strengthen best practice and limitations * debt markets: the nascent corporate markets, attempts to boost liquidity and new insturments. * private equity market: why this market has been so successful, who’s involved. *electronic, high frequency trading and alternative trading platforms: what does the future hold? Banking *credit: the growth of consumer and business credit and competition between banks and models *Public versus private: the role and market share of public and private sector banks and the politicization of the industry * internationalization: which Brazilian banks are expanding overseas and where * investment banking: the growth of the domestic market and who’s winning which mandates *regional banks and development banks: what role they play in the industry and how they compete Mining *licensing: the complex process of obtaining environmental, water, land and operating licenses at a state and federal level. * capacity: the feasibility and sustainability of capacity increases * financing: how miners are raising finance in Brazil and abroad *competition: the interplay Vale, MMX and junior miners *logistics: rail, road and port connections Oil and gas: the fund raising issues related to the massive of pre-salt (link) Multilatinas: Who are they and how and where they are expanding Meatpacking: Are debt burdens sustainable, what are the different business models for areas such as branding and distrbution Agriculture: How are farms consolidating, what are environmental risks, how can foreign investors be involved. IT and software: Can Brazil take on India and build a viable long-term IT industry? For more information on clients and work, please see the media and consultancy sections.
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