Brazil’s Ilan Goldfajn on Central Bank Communications – IMF F&D | DECEMBER 2019
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- Published: December 1, 2019
Central message: conviction, regime adherence, and selective deviation from consensus
- Central bankers should follow their convictions and the guidance of their policy regime, even when this means going against markets, press, and analysts.
- Examples:
- In mid-2016, during his first two weeks as governor, Goldfajn disagreed with widespread calls to adjust Brazil’s inflation-targeting regime despite high inflation perceptions; inflation in 2017 was 2.95 percent, below target.
- By 2018, despite rising U.S. interest rates and expectations that Brazil should raise rates, Brazil kept rates unchanged because the economy was recovering slowly and inflation remained low—another instance of resisting consensus.
- Rationale: sticking to the framework and coordinated expectations can make challenging inflation targets achievable.
Transparency and communication practices
- Major changes implemented to increase transparency:
- Changed the monetary policy decision announcement and the minutes.
- Communicated in simpler, more concise, and straightforward language to clarify actions and conditionality.
- Operational detail preserved:
- Monetary policy decision comes out on a Wednesday and the minutes on the following Tuesday morning.
- Communication objectives:
- Influence and anchor inflation expectations by signaling what the central bank intends to do “depending on what would happen next.”
- Provide rationale so stakeholders understand decisions, not only the decisions themselves.
Institutional constraints, public scrutiny, and conduct
- Governance and personal conduct:
- Governors are under 24-hour scrutiny; public officials must be careful about public statements and use of public resources (examples: driver, plane).
- Public perception during crises extends to personal demeanor and behavior.
- Implication: heightened transparency demands greater discipline in both public communication and private conduct.
Views on central-bank roles and mandates
- Crisis expectations and independence:
- Perception of central banks as powerful crisis-fighting tools increases political pressure to do more.
- Unconventional policies after the global financial crisis prompted political questioning in some advanced economies.
- Dual mandate considerations:
- Central banks already consider inflation and growth trade-offs in the short term (stimulate in recessions, weigh trajectory toward target).
- Long-term growth determinants—productivity, education, investment—are largely outside central-bank mandate; central banks contribute through stability but cannot by themselves generate productivity growth.
Exchange rate policy stance
- Approach to exchange-rate pressures:
- There is a role for the central bank in dealing with disorderly market conditions and helping markets function better.
- Otherwise, allow the exchange rate to fluctuate in a way that reflects fundamentals and shocks.
- Policymakers must develop a framework to determine when to intervene and when to let the exchange rate reflect current economic reality.
Background and career highlights (contextual)
- Personal and professional context:
- Born in Israel; grew up in Rio de Janeiro during severe economic instability (four currency changes in seven years; inflation upward of 80 percent a month).
- Earned a PhD from the Massachusetts Institute of Technology.
- Worked with Asian countries at the IMF during the late 1990s.
- Deputy governor for economic policy at Brazil’s central bank in the early 2000s.
- Chief economist of Itaú Unibanco from 2009 to 2016.
- President of Brazil’s central bank from June 2016 to February 2019.
- Recently named Credit Suisse’s new chairman in Brazil.
Interview with F&D’s Andreas Adriano, F&D Magazine, December 2019. Opinions expressed are those of the author and do not necessarily reflect IMF policy.
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