1 / 17

Alexandre Tombini Governor Banco Central do Brasil

Shaping Central Banking’s Institutions in the New Paradigm. Alexandre Tombini Governor Banco Central do Brasil. 3 rd SEACEN-CEMLA Conference. October 2013. Outline. Pre and Post-Crisis Views on Central Banking. Main Open Questions. Brazil: Policy in the Post-Crisis Period.

margot
Download Presentation

Alexandre Tombini Governor Banco Central do Brasil

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Shaping Central Banking’s Institutions in the New Paradigm Alexandre Tombini Governor Banco Central do Brasil 3rd SEACEN-CEMLA Conference October 2013

  2. Outline • Pre and Post-Crisis Views on Central Banking • Main Open Questions • Brazil: Policy in the Post-Crisis Period

  3. Initial remarks • The global financial crisis led to a reevaluation of central banking practices. Some initial conclusions can already be drawn • There is still no consensus on the implications for monetary and macroprudential policy frameworks. I will lay out our pragmatic views on this issue • These views are reflected in Brazil’s monetary and macroprudential policies in the post-crisis period

  4. Pre-crisis view: full separation of roles Price stability assures macroeconomic stability Instruments and their impacts well-understood Sound individual institutions assure financial stability No interaction: clean, not lean against asset prices

  5. Post-crisis view: initial observations • Price stability insufficient to assure macroeconomic stability • Microprudential regulation proved procyclical • Prudential regulation must take systemic view • Rekindled debate on optimal coordination of monetary and prudential policy

  6. Central banks and financial stability • Advantages of dual mandate for central banks: • Financial market and macroeconomic intelligence useful for macroprudentialpolicy • Easier information-sharing and coordination during a crisis • Central banks have gained (or increased the relative importance of) financial stability mandates • In Brazil (and in other emerging markets), financial stability mandate even before crisis • Created financial stability committee within Bank • Adopted “twin peaks” supervisory model • Improved credit and trade data repositories

  7. Optimal policy coordination • No consensus • Pragmatic view: 2 goals, 2 instruments • Monetary policy →price stability • Macroprudential policy →financial stability • But do need to take into account interactions between instruments and goals

  8. Monetary policy: IT framework still optimal • Monetary policy focus should continue to be price stability: vertical long-run Phillips curve • Short-run: has flexibility to absorb shocks • Transparency and simplicity (of target) favor accountability • Post-crisis, major central banks adopted elements of the IT framework (US, Japan) • Projection models need to incorporate financial sector more deeply

  9. Post-crisis view Financial stability precondition for macroeconomic stability Need to consider interactions between policies Price stability insufficient for macroeconomic stability Need more detailed financial sector information in projection models No consensus, but my view is two instruments for two targets Need to consider interactions between policies Systemic orientation

  10. Brazil: policy in the post-crisis period • Intense, volatile capital flows which could lead to excessive credit expansion and asset price distortions • Macroprudential policies targeting both credit markets and capital flows directly. Helped reduce short-term, risky flows and moderate credit growth to sustainable levels • UMP exit: Brazil is removing risk by offering foreign exchange hedge • Goal of monetary policy continues to be price stability

  11. FX flows in the post-crisis period Source: BCB

  12. FX flows rebalance Source: BCB

  13. Credit growth slows to sustainable pace December 2010 - Increased capital requirements for specificconsumer loan operations with long maturities and high LTV ratios Source: BCB

  14. UMP exit and the BCB’s response • Federal Reserve signaling about tapering asset purchases led to global EME sell-off, impacting asset prices • Brazil’s policy response focused on reducing interest rate and especially FX risk • Launched program of regular FX swaps and FX credit lines • The program resulted in significantly lower FX volatility and risk premiums in asset prices

  15. Lower FX volatility and risk premiums * From Aug 22 (announcement of FX swaps and credit lines program) through Oct 18 1/ The Bloomberg U.S. Dollar Index tracks the performance of a basket of ten leading global currencies versus the U.S. Dollar (JPY, MXN, AUD, GBP, CAD, SGD, CHF, CNH, KRW and EUR). Source: BCB

  16. Concluding remarks • Crisis led to a reevaluation of central banking mandates, tools, and policy frameworks • Macroprudential policy has been effective in safeguarding financial stability in the post-crisis period • Inflation targeting remains best framework for monetary policy

  17. Shaping Central Banking’s Institutions in the New Paradigm Alexandre Tombini Governor Banco Central do Brasil 3rd SEACEN-CEMLA Conference October 2013

More Related