It is likely that the Central Bank of Brazil will continue to hike rates and possibly reinforce the tightening cycle with more macro-prudential measures.
In a speech to the Economic Commission of the Senate March 22, Governor Alexandre Tombini defended the inflation targeting regimen, noting that the bank’s objective is to reduce inflation back to the target, 4.5 percent. He also said that inflation is approaching that target. Nonetheless, he explained that monetary policy must take into consideration the fluid and uncertain outlook for the global economy, particularly in light of developments in the last three weeks or so.
Equities markets rallied in the week ending March 24, showing strength across all sectors. The strong performance was broad-based across all sectors, especially the Telecom sector, which increased 9 percent in local terms, as a consequence of a deal between AT&T and T-Mobile boosting local stocks valuation.
Hong Kong/China stocks rebounded last week, as investors recovered from volatility the previous week in the wake of Japan’s record earthquake.
In China, the policy overhang has been removed and the government tightening policies will gradually take effect. February credit growth and money supply data showed further weakness due to a record high reserve requirement ratio slowing credit creation. Restrictive property controls have also reduced the asset inflation threat.
Indian stocks continued to recover as oil prices retreated from record highs. Indian stocks have been resilient during the Japan earthquake as the economy is reasonably insulated from knock-on effects, but another spike in oil prices would cause trouble on the inflation front.
The sectors that have seen a marginal impact are automobiles and consumer durables, which source part of their raw materials from Japan, and petrochemicals, where prices have increased because of supply disruptions from Japan.