The Brazilian real's dramatic drop has left the central bank with two options: jack up rates aggressively in one startling move, or tolerate higher inflation for longer.
They say every top central banker faces a "test," and this may be it for Federal Reserve Chair Janet Yellen.
(Any opinions expressed here are those of the author and not of Thomson Reuters)
The U.S. Federal Reserve’s decision to hold rates came as a relief for Asian markets, especially in India where the Nifty ended the week at 7,982, or 2.5 percent higher. However, U.S. and European markets corrected sharply on Friday due to Fed chief Janet Yellen’s comments over China’s economic slowdown.
With great power comes great responsibility, as a wise comic-book character once said. And so the Federal Reserve's decision this afternoon bears the weight of re-establishing credibility in its ability to shift policy in more than one direction, communicate to markets its thinking, and yet - if it raises rates - to soothe investors concerned that several more rate increases are in the offing. (The Fed has repeatedly said this isn't the case, but who knows how markets interpret things sometimes.)
British workers have hit a sweet spot with wages rising much faster than near-zero inflation, suggesting the economy could gain further momentum as consumers spend their spare cash.
Inflation may be far off target but economists are convinced the United States Federal Reserve and the Bank of England will soon begin raising rates from near zero - with the Fed poised to act as soon as Thursday.
The Japanese yen has strengthened unexpectedly by about 4 percent over the last month and it could rise further if the U.S. Federal Reserve delays a rate hike and the dollar weakens.
That the European Central Bank will have to soon add to its massive stimulus programme is fast becoming the consensus view among economists, although how it will do that effectively is far from clear.
For months, Latin America's inflation has been surprisingly steady given the steep drop of their currencies. Weak growth helped curb prices - but that may be about to change.
The biggest attention grabber out of Japan is today's 7.7% moonshot on the stock market, based on hopes of further central bank stimulus in Asia as well as an expected corporation tax cut over the next few years. Never mind that this comes just one day after the Nikkei joined many other major global stock indexes in wiping out its gains for the year.