Economy

Brazil’s central bank divided over services inflation improvement

Published

7 months ago

September 27, 2023

Brazil's central bank divided over services inflation improvement

BRASILIA (Reuters) – Brazil’s central bank voiced concerns over inflation expectations not aligning with official targets and noted differing opinions among board members on services inflation improvements, ruling out any acceleration in its easing cycle, according to the minutes of its Sept. 19-20 meeting.

While some members of the rate-setting committee Copom pointed out the decrease in closely watched services inflation at the meeting last week, when the central bank cut the benchmark Selic interest rate by 50 basis points to 12.75%, others took a more cautious approach.

This other group highlighted that the underlying fundamentals for services inflation dynamics were uncertain, given economic activity and labor market resilience.

Policymakers had previously signaled further rate cuts of the same size ahead, tempering market expectations for a faster pace later in the year. The central bank is now emphasizing a low likelihood of larger reductions in the Selic rate, which would require substantial positive surprises in inflation.

William Jackson, chief emerging markets economist at Capital Economics, said that as mid-September inflation figures released on Tuesday showed a marginal uptick in core services inflation, breaking a consistent trend of decline since February, the concern among some Copom members regarding this issue was likely to gain momentum.

“These inflation data will have given ammunition to Copom’s hawks and support our view that the easing cycle will continue in 50-basis-point steps until the middle of next year, before shifting to smaller 25-bp steps, bringing the Selic rate to 9.50% by end-2024,” he wrote in a note to clients.

Speaking at an event hosted by J. Safra bank, central bank monetary policy director Gabriel Galipolo said on Tuesday that the latest services inflation data came with “a little bit of surprise” in indicators that tend to be more volatile. But he stated that the headline figure, which reached an annual 5.00%, was positive.

MISALIGNED EXPECTATIONS

In the minutes, the central bank also signaled that part of its board was “particularly concerned” about the possibility of inflation targets becoming unanchored for an extended period, after saying that the divergence from inflation targets remains “a matter of concern.”

Market participants surveyed weekly by the central bank project inflation at 3.86% in 2024 and 3.5% in 2025, exceeding the official 3.0% target for the two years guiding current monetary policy decisions.

The central bank last week raised its inflation forecasts to 3.5% in 2024 and 3.1% in 2025. It attributed these higher figures to a tighter output gap, rising oil prices, foreign exchange rate depreciation, and lower expected future interest rates by the market, the minutes showed.

It also cited ongoing fiscal concerns, global disinflation fears, and the perception that the central bank could become more lenient in fighting inflation over time as factors contributing to the divergence in inflation expectations from official targets.

Policymakers said the reduction of expectations would come through “firm conduct” to regain credibility and strengthen the reputation of institutions and economic frameworks, at a time when President Luiz Inacio Lula da Silva’s target of eliminating the primary budget deficit next year is viewed with skepticism due to its reliance on booming public revenues.

Economy

Russian central bank says it needs months to make sure CPI falling before rate cuts -RBC

Published

4 months ago

December 26, 2023

Russian central bank says it needs months to make sure CPI falling before rate cuts -RBC

MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.

The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.

Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.

“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.

Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.

“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.

The bank will next convene to set its benchmark rate on Feb. 16.

The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.

Economy

China identifies second set of projects in $140 billion spending plan

Published

4 months ago

December 25, 2023

China identifies second set of projects in $140 billion spending plan

© Reuters. FILE PHOTO: Workers walk past an under-construction area with completed office towers in the background, in Shenzhen’s Qianhai new district, Guangdong province, China August 25, 2023. REUTERS/David Kirton/File Photo

SHANGHAI (Reuters) – China’s top planning body said on Saturday it had identified a second batch of public investment projects, including flood control and disaster relief programmes, under a bond issuance and investment plan announced in October to boost the economy.

With the latest tranche, China has now earmarked more than 800 billion yuan of its 1 trillion yuan ($140 billion) in additional government bond issuance in the fourth quarter, as it focuses on fiscal steps to shore up the flagging economy.

The National Development and Reform Commission (NDRC) said in a statement on Saturday it had identified 9,600 projects with planned investment of more than 560 billion yuan.

China’s economy, the world’s second largest, is struggling to regain its footing post-COVID-19 as policymakers grapple with tepid consumer demand, weak exports, falling foreign investment and a deepening real estate crisis.

The 1 trillion yuan in additional bond issuance will widen China’s 2023 budget deficit ratio to around 3.8 percent from 3 percent, the state-run Xinhua news agency has said.

“Construction of the projects will improve China’s flood control system, emergency response mechanism and disaster relief capabilities, and better protect people’s lives and property, so it is very significant,” the NDRC said.

The agency said it will coordinate with other government bodies to make sure that funds are allocated speedily for investment and that high standards of quality are maintained in project construction.

($1 = 7.1315 renminbi)

Economy

Russian central bank says it needs months to make sure CPI falling before rate cuts -RBC

Published

4 months ago

December 25, 2023

Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.

“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.

Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.

“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.

The bank will next convene to set its benchmark rate on Feb. 16.

The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.