LatinFinance - September/October 2013 - 27

was under control,” says Bernal. “and when
we all wanted them to cut rates they didn’t
cut rates — and they were right.”
Since may, the US fed’s indications that
it will wind down its quantitative easing
program has put heavy pressure on the
mexican peso. “and in that way, there was
vindication to the central bank of mexico
for not cutting rates,” says Bernal.
at the currency’s strongest point this
year, in early may, a dollar was worth 12
pesos. four months later, it had weakened
to 13.3 pesos to the dollar.
carstens, who started a six-year term
in 2010, tells LatinFinance that mexico’s
“strong fundamentals” will help shield
its economy from the worst effects of a
deteriorating global business cycle. He also
says that growth will be “much better” in
the second half of the year than the first
half, as economic activity in the US picks up.
“Given that mexico is very closely
integrated into the US, that should benefit
mexico in particular,” he says. nevertheless,
he acknowledges that the economy’s “poor
performance” in the first six months of
the year “is sufficient to anticipate lower
growth for the year as a whole”.
Chile, Colombia impress
chilean and colombian central banks also
stood out for special mention, with analysts
praising their ability to control inflation.
the central Bank of chile, led by Rodrigo
Vergara since 2011, has held rates for 18
months in spite of calls for intervention. it
is transparent with its policy decisions and
has been opportunistic in cutting rates.
the bank’s last cut was in January 2012,
when it brought the benchmark interest
rate down 25 basis points to 5%. it has
been able to justify its neutral stance, says
Vladimir Werning, economist for latin
american economic and policy research at
JPmorgan.
chile has registered strong growth with
little inflation, says Pablo Goldberg, head of
emerging market research at HSBc. chile’s
inflation target is 3%, although for much of
2013 it has been below 2%.
“that’s helping them now that we are
in an environment of some deceleration in
emerging markets,” says ilan Goldfajn, chief
economist at itaú-Unibanco. “they have
room to allow the currency to depreciate.
they have room if they need to intervene.”
colombia has kept inflation in the target
range, and implemented a steady series of
interest rate cuts — from 5.25% in July 2012
to 3.25% in march.

it held the benchmark in July for the
fourth month in a row, and analysts expect
it will stay there for the rest of the year.
Volatile mood
central banks in mexico, chile and
colombia have demonstrated exemplary
performance over the past year. from
there, a ranking becomes more difficult.
Peru was recognized by analysts as
timing its moves well. the central bank,
led by Julio Velarde, had to contend with
significant capital inflows for much of the
period under consideration.
the bank has held benchmark interest
rates at 4.25% since June 2011, and is
expected to continue doing so for the rest
of the year.
Yet some analysts were hesitant to
recommend Peru, because some 43% of

Tony Volpon, nomura

“There’s been a massive improvemenT in
The cenTral bank’s
performance from
abouT a year ago,
so i’ll give Them my
voTe in The mosT improved caTegory”
private sector lending is denominated
in dollars. “that there’s a high degree of
dollarization in the Peruvian economy
imposes some constraints to policy making
that other countries don’t have,” says credit
Suisse’s cervera.
Brazil’s central bank also stands out,
if not always for positive reasons. Yet its
role as a central decision-maker for the
management of a $2.3 trillion economy
lends particular weight to its efforts. the
bank embarked on a tightening cycle
with a 50 basis point rate hike, to 8%, in
may. analysts praised the move. But they
criticized the bank, led by alexandre
tombini, for poor communication over
the currency and interest rates, as well as
persistently high inflation.
the country’s iPca inflation hit 6.7% in
June, above the two-point tolerance band
around its 4.5% target rate. that prompted
the bank to lift the benchmark Selic interest

rate a further 50 basis points in July.
the rates rises in the face of lower growth
indicate the central bank has learned from
its mistakes, and is focusing more directly
on inflation says tony Volpon, head of
emerging markets research at nomura.
“there’s been a massive improvement in
the central bank’s performance from about
a year ago, so i’ll give them my vote in the
most improved category.”
itaú’s Goldfajn says the tightening is good
for the bank’s credibility. after another 50
basis point rise at the end of august, the
Selic stood at 9%. Some analysts predicted it
could climb a further 75 basis points in 2013.
the central bank in august also put in
place a $60 billion currency intervention
program — one of the boldest of any
emerging markets in response to the global
sell-off. the moves succeeded in stabilizing
the real following a rout that had seen the
currency lose 20% of its value against the
dollar since the start of the year.
Inflation troubles
Behind the five top central banks, those of
Uruguay and the Dominican Republic are
also noteworthy.
With over half of loans in foreign
currency, Uruguay’s small, highly dollarized
economy faced a tough fight against
inflation. Prices are likely to rise 8.2%
in 2013, moderating to the mid-7% area
in 2014, according to the central bank’s
market expectation survey in august.
Headed by mario Bergara, the bank hiked
its benchmark interest rate 25 basis points
in December 2012 and held it at 9.25% in
march.
Still, Uruguay’s struggles with inflation
and currency volatility have pushed the
central bank, in the words of one analyst, to
“innovate”.
in mid-2012, it introduced capital
controls to combat a rising peso, bringing in
a 40% reserve requirement for new foreign
purchases of short-term central bank
bonds. in June 2013, it switched from using
a reference interest rate to an aggregate
money supply measure to target inflation.
“i wouldn’t necessarily say that the
policies have been misguided, but the
authorities have been a bit too reactive in
terms of their policy choices,” says franco
Uccelli, an executive director of emerging
markets research at JPmorgan.
meanwhile, the Dominican Republic’s
central bank has kept the currency stable. it
held its policy rate in June and July, having
cut it 75 basis points in may. LF

September/October 2013 - l atinfina nce.com 27


http://www.LATINFINANCE.COM

LatinFinance - September/October 2013

Table of Contents for the Digital Edition of LatinFinance - September/October 2013

Latin Finance - September/October 2013
Contents
Front notes
People news
Debt news
Equity news
M&A news
After the storm
Advantage Mexico
Treading water
New structures
Mexico
Regaining the Initiative
Deficit Ahead
Building up
Switching Course
Brazil
Work in progress
Extreme makeover
Mind the gap
Brazilian life insurance
Andean
Breaking the fall
Reaching out
Market movers
Paraguay
Smoothing the cycles
Thinking big
Parting Shot
LatinFinance - September/October 2013 - Latin Finance - September/October 2013
LatinFinance - September/October 2013 - Cover2
LatinFinance - September/October 2013 - Contents
LatinFinance - September/October 2013 - 2
LatinFinance - September/October 2013 - 3
LatinFinance - September/October 2013 - Front notes
LatinFinance - September/October 2013 - 5
LatinFinance - September/October 2013 - People news
LatinFinance - September/October 2013 - 7
LatinFinance - September/October 2013 - Debt news
LatinFinance - September/October 2013 - 9
LatinFinance - September/October 2013 - Equity news
LatinFinance - September/October 2013 - 11
LatinFinance - September/October 2013 - M&A news
LatinFinance - September/October 2013 - 13
LatinFinance - September/October 2013 - 14
LatinFinance - September/October 2013 - 15
LatinFinance - September/October 2013 - 16
LatinFinance - September/October 2013 - 17
LatinFinance - September/October 2013 - 18
LatinFinance - September/October 2013 - 19
LatinFinance - September/October 2013 - 20
LatinFinance - September/October 2013 - 21
LatinFinance - September/October 2013 - 22
LatinFinance - September/October 2013 - 23
LatinFinance - September/October 2013 - After the storm
LatinFinance - September/October 2013 - 25
LatinFinance - September/October 2013 - Advantage Mexico
LatinFinance - September/October 2013 - 27
LatinFinance - September/October 2013 - Treading water
LatinFinance - September/October 2013 - 29
LatinFinance - September/October 2013 - 30
LatinFinance - September/October 2013 - New structures
LatinFinance - September/October 2013 - 32
LatinFinance - September/October 2013 - 33
LatinFinance - September/October 2013 - 34
LatinFinance - September/October 2013 - 35
LatinFinance - September/October 2013 - 36
LatinFinance - September/October 2013 - 37
LatinFinance - September/October 2013 - 38
LatinFinance - September/October 2013 - 39
LatinFinance - September/October 2013 - 40
LatinFinance - September/October 2013 - Mexico
LatinFinance - September/October 2013 - Regaining the Initiative
LatinFinance - September/October 2013 - 43
LatinFinance - September/October 2013 - Deficit Ahead
LatinFinance - September/October 2013 - 45
LatinFinance - September/October 2013 - Building up
LatinFinance - September/October 2013 - 47
LatinFinance - September/October 2013 - 48
LatinFinance - September/October 2013 - 49
LatinFinance - September/October 2013 - 50
LatinFinance - September/October 2013 - 51
LatinFinance - September/October 2013 - Switching Course
LatinFinance - September/October 2013 - 53
LatinFinance - September/October 2013 - 54
LatinFinance - September/October 2013 - 55
LatinFinance - September/October 2013 - 56
LatinFinance - September/October 2013 - Brazil
LatinFinance - September/October 2013 - Work in progress
LatinFinance - September/October 2013 - 59
LatinFinance - September/October 2013 - 60
LatinFinance - September/October 2013 - 61
LatinFinance - September/October 2013 - Extreme makeover
LatinFinance - September/October 2013 - 63
LatinFinance - September/October 2013 - 64
LatinFinance - September/October 2013 - 65
LatinFinance - September/October 2013 - 66
LatinFinance - September/October 2013 - Mind the gap
LatinFinance - September/October 2013 - 68
LatinFinance - September/October 2013 - 69
LatinFinance - September/October 2013 - Brazilian life insurance
LatinFinance - September/October 2013 - 71
LatinFinance - September/October 2013 - 72
LatinFinance - September/October 2013 - Andean
LatinFinance - September/October 2013 - Breaking the fall
LatinFinance - September/October 2013 - 75
LatinFinance - September/October 2013 - 76
LatinFinance - September/October 2013 - Reaching out
LatinFinance - September/October 2013 - 78
LatinFinance - September/October 2013 - 79
LatinFinance - September/October 2013 - 80
LatinFinance - September/October 2013 - 81
LatinFinance - September/October 2013 - Market movers
LatinFinance - September/October 2013 - Paraguay
LatinFinance - September/October 2013 - Smoothing the cycles
LatinFinance - September/October 2013 - 85
LatinFinance - September/October 2013 - Thinking big
LatinFinance - September/October 2013 - 87
LatinFinance - September/October 2013 - Parting Shot
LatinFinance - September/October 2013 - Cover3
LatinFinance - September/October 2013 - Cover4
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