Latin American central banks are watching today’s Federal Reserve meeting very closely. Some are ready to raise their own interest rates, even if Yellen does not pull the trigger now.
Brazil’s President Dilma Rousseff is fighting for political survival less than a year after being re-elected. Several reasons have been pointed exhaustively to explain how things got so bad in such a short period of time: chief among them are the burgeoning corruption scandal at state-run Petrobras and stubbornly high inflation, out of sync with the rest of the world.
Just as ECB President Mario Draghi announced a massive bond-buying program to revive Europe’s economy and fend off deflation fears, news of shockingly low inflation popped up elsewhere in the globe: consumer prices in Mexico dropped 0.19 percent in early January, far below all 19 forecasts in a Reuters poll.
Are Mr and Mrs Watanabe preparing to return to emerging markets in a big way?
Mom and pop Japanese investors, collectively been dubbed the Watanabes, last month snapped up a large volume of uridashi bonds (bonds in foreign currencies marketed to small-time Japanese investors), and sales of Brazilian real uridashi rose last month to the highest since July 2010, Barclays analysts say, citing official data.
The outlook for emerging market economies over the next decade looks more challenging as long-term interest rates start to bottom out in the United States. Here is another complicating factor: ageing populations.
Central bankers have said repeatedly since the start of the global financial crisis that monetary policy can only do so much to heal a broken economy. Agustín Carstens, president of Mexico’s central bank, chose an interesting analogy at an IMF event this weekend to describe the adjustment needed in countries with very high debt levels:
Mexico Central Bank Governor Agustin Carstens spoke to Reuters Insider on the sidelines of this year’s IMF/G20 meetings. He said the peso, which like many other emerging market currencies has taken a drubbing with the dollar’s recent rally, is undervalued. But unlike in Brazil, where an even more volatile exchange rate has prompted the monetary authorities to step in, Carstens said Mexico does not see the need to intervene.
Mexico has won Spain’s vote in the leadership contest for the International Monetary Fund. Or rather, it appears Mexico is effectively telling Spain how it will vote. Of course, Spain’s problem is that it doesn’t really have a vote.