The Central Bank of Brazil’s policy interest rate cut from 12.5 to 12 per cent
inspires admiration, fear and jealousy.
The admiration is for continuing boldness. The central bank is responding
bravely to the sudden deterioration in the global economic environment. If
the global summer soft patch ends soon, or if Brazilian inflation starts to
rise again, it will look foolish. But the slowdown bet looks good, if
Thursday’s releases of surveys of manufacturing sentiment are any indicator:
at recessionary levels in the UK and the lowest in two years in the eurozone.
Admirable
Brazilians are also admirable in their battle against the now fading tradition
of high inflation. Even after the cut, the overnight rate is about 5
percentage points higher than the inflation rate. That real rate is roughly
zero in India, China, Russia and Japan and negative in the US, eurozone and
UK.
But the Brazilian cut sets two frightening precedents.
First: political weakness. The crisis has made central bankers much more
political, but in most countries they have the upper hand over politicians
and regulators. In Brazil, it looks as if the bank has yielded to pressure
from the government to ease up.
Second: policy impotence. The Brazilian central bank has proved no better than
its peers at keeping inflation down and growth balanced and high. The rate
cut is in part an admission that high rates have pushed up the currency and
hurt exporters.
At least the Brazilians have room to manoeuvre. In almost every other country,
additional monetary stimulus would be likely to do nothing more than blow
dangerous financial bubbles. Central bankers can be excused for feeling
jealous of the Brazilians' freedom.
Dit artikel is oorspronkelijk verschenen op z24.nl