shine trader limited reports:
Latin American central banks have been at the forefront of the world in raising interest rates to “cool” inflation. On September 22 local time, the Central Bank of Brazil raised interest rates by 100 basis points again, raising the benchmark interest rate to 6.25%, the fifth rate increase since March this year.
On the same day that the Central Bank of Brazil raised borrowing costs, the Federal Open Market Committee of the Federal Reserve decided to maintain the federal funds rate in the target range of 0-0.25%, and said that the pace of asset purchase of at least $120 billion per month would soon slow down.
Last year, in response to the impact of COVID-19 on the economy, countries across the world adopted the ultra loose monetary policy and planted the seeds of inflation at the same time. Since this year, global inflation has been heating up due to multiple factors such as repeated delays in the supply chain, rising supply chain bottlenecks and rising commodity prices. In the face of inflation, developed economies such as the United States and Europe are generally much more “calm” than emerging market economies such as Latin America.
Yue Yunxia, director of the Economic Research Office of the Latin American Institute of the Chinese Academy of Social Sciences, said in an interview with the 21st Century Business Herald that there are three main reasons for the obvious differences in the direction and intensity of monetary policy among countries.
First, the efficiency of monetary policy varies from country to country. Developed economies have more initiative in influencing the world market, more complete policy tools and more sufficient “foundation” to maintain loose monetary policy for a long time; The efficiency of monetary policy in Latin American countries is limited, and they often “can’t afford to wait” in the face of inflation.
Second, the monetary policy targets of various countries are different. Developed economies focus on full employment and economic growth indicators, so monetary policy is relatively loose; Most Latin American countries implement inflation targeting in their monetary policies, and the direct measure in the face of high inflation is to raise interest rates.
Third, countries have different positions in the global division of labor system. Developed economies mainly export manufactured goods, which are less affected and stressed by inflation transmission than Latin American countries. In the global inflation, commodities are the category that is greatly affected in the first round, and the relevant exporting and importing countries are under greater pressure, so they are the first to take countermeasures.
Another analysis pointed out that the rise in global commodity prices pushed up local prices in two ways: compared with selling food in domestic currency, it is often more cost-effective for manufacturers to export products and earn US dollars; Key imported products are more expensive, including manufactured goods and industrial intermediate products that Latin America relies heavily on imports.
Alberto Ramos, head of Latin American economics at Goldman Sachs, said that with the rapid spread of inflationary pressure, greater policy tightening may be needed.