Last week in global monetary policy, Hungary and Albania extended their easing cycles due to low inflationary pressures while Colombia raised its rate for the second consecutive month in anticipation of accelerating inflation.
Meanwhile, the major themes of this year in global finance continued to evolve last week, with growing signs the European Central Bank (ECB) will embark on some form of extraordinary accommodative measures this week, hawkish talk around the Bank of England (BOE), concern over the lack of global economic and monetary cooperation, and a possible extension of the Bank of Japan’s (BOE) aggressive easing campaign past 2015.
But the main feature of monetary policy last week came from the Central Bank of Brazil, which called a halt to its tightening campaign after nine rate rises in a row.
Since April 2013, Brazil’s central bank has raised its rate by a total of 375 basis points, pushing the key Selic rate to 11.0 percent.
The pause was widely anticipated but was still controversial as inflation in April of 6.28 percent is way above the bank’s 4.5 percent target and close to the upper tolerance limit of 6.5 percent. In addition, inflation is also expected to rise further in coming months due to prices increases in connection with the World Cup soccer tournament from mid-June to mid-July.
Just as Turkey’s central bank is battling to shore up its independence and credibility amidst intense political pressure, economists suspect Brazil’s central bank may have let the presidential election in October influence its decision to pause its tightening campaign now.
In Hungary, the central bank cut its rate for the 22nd time in a row, but is inching ever so closer to a neutral stance, and will let next month’s rate decision rest on the outcome of its new economic forecast.
Colombia’s central bank is proving to be very pro-active, once again saying a gradual increase in rates now should reduce the need for larger and more sudden changes in future policy given the lag with which monetary policy impacts economic activity.
