August 29, 2013 / 5:32 PM / 4 years ago

Brazil central bank aims for simple after communication fumbles

BRASILIA, Aug 29 (Reuters) - At a time of heightened financial turbulence at home and abroad, Brazil’s central bank chief, Alexandre Tombini, is moving away from the typically convoluted, cryptic language of monetary authorities and opting for a new approach: speaking simply.

Criticized for misguiding investors with ambiguous signals of changes in monetary policy, Tombini has polished his communication skills and is now sticking to shorter, clearer messages to financial markets.

Predictability is at a premium for Brazilian policymakers struggling to regain investor confidence in the once-booming emerging-market star that has become bogged down by slow growth and high inflation.

“They are communicating better, so they make their actions more predictable and in doing so it makes their decisions more effective and powerful,” said Alberto Ramos, chief Latin America economist for Goldman Sachs. “We don’t need very specific guidance, but we need them to say that they will do what is needed to reanchor inflation.”

Central bankers, in general, are known for favoring obscure language made popular by former U.S. Federal Reserve chairman Alan Greenspan, who used to mumble complex monetary terms barely audible to his audience.

Tombini’s opaque statements have led investors in the wrong direction many times.

In March 2012, he signaled that a slowdown in the pace of monetary easing was in the cards, but surprised markets a month later with a large cut in the central bank’s benchmark Selic interest rate. Late last year, Tombini hinted that rates were going to stay at record lows for a prolonged time, only to reverse course six months later.

Mixed messages, such as signaling different degrees of tolerance for a weaker Brazilian currency, have eroded the bank’s credibility and undermined its efforts to anchor high inflation expectations, analysts say.

Clear central bank communication is particularly important at a time when Brazilian markets are roiling due to expectations of a withdrawal of monetary stimulus by the United States. The Brazilian real has depreciated more than 13 percent against U.S. dollar this year.

The bank has limited its monetary forward guidance, vowing to lower inflation but without committing to a set rate level.

Tombini used that strategy on Wednesday when the bank announced a 50 basis point hike in the Selic rate to 9 percent, as most in the market expected, but stuck to the terse language used in the two previous rate decisions.

Tombini showed his growing assertiveness last week when he warned investors they were getting ahead of themselves by pricing in a steeper rate hike. His comments effectively reversed bets and convinced traders the bank was aiming to keep the pace of rate hikes unchanged.

More revealing was the bank’s bold move last week to launch a daily forex intervention program worth $60 billion, injecting more certainty to calm markets roiled by a sharp depreciation of the local real currency.

When contacted for comment, a central bank spokesman said the bank did not comment on the opinions of market players.


Although the central bank appears to have learned from its communications mishaps, analysts say its strategy remains clumsy.

“They are trying to communicate less, therefore they make less mistakes. They have improved because it was impossible to get any worse,” said Alexandre Schwartsman, a former Brazilian central bank director and partner at Schwartsman & Associados.

“Confidence is not built on what the central bank says, but on what it does.”

Investor confidence in Latin America’s largest economy is at multi-year lows following erratic policy choices that include government intervention in key sectors of the economy and a perceived divide between the central bank and the Finance Ministry.

President Dilma Rousseff’s government should follow the central bank and communicate more clearly and consistently with markets to rebuild confidence, said Andre Perfeito, chief economist with Gradual Investimentos.

“As an instrument, the central bank is using communication properly at the moment,” Perfeito said. “However, the monetary authority alone cannot do much, it needs more clarity on the fiscal front and the government has yet to help on that issue.”

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