As revenue plunges and expenditure soars to fight coronavirus economic fallout, congress weighs a bill to grant the central bank emergency powers to carry out 'quantitative easing
20 April 2020 - 17:12Brazil's central bank president Roberto Campos Neto in Brasilia, Brazil, April 17 2020. Picture: REUTERS / UESLEI MARCELINOBrazil appears set to embark cautiously on unconventional monetary policy using small interventions to tackle dysfunction in bond markets, as it does with foreign exchange, but the severity of the crisis may ultimately force it to emulate the dramatic steps taken in the US and Europe.
Central bank chief Roberto Campos Neto has said that his preferred version of QE would flatten the yield curve without expanding the monetary base or the bank's balance sheet, by buying long-dated bonds while selling short-dated debt, similar to the Fed's “Operation Twist” in 2011. Former central bank president Arminio Fraga said that, while foreign central banks are using QE as a huge economic stimulus to bring down long-term interest rates and boost asset prices, Brazil's approach would be more “defensive”.
“They should just let go and buy both short- and long-term bonds ... and be ready to cover the government deficit this year,” he said.
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