Going against the Tide

54 FINANCE & DEVELOPMENT | December 2019
Going against the Tide
Brazil’s Ilan Goldfajn explains why
central bankers ought to follow
their convictions
CENTRAL BANKS SHOULD NE VER surprise markets, so
goes the cliché. But Ilan Goldf ajn knows that some-
times that is exactly what is needed. In mid-2016,
during his rst t wo weeks as governor of Brazil ’s
central bank, ma rkets, journalists, and com menta-
tors all believed that t he country’s ination-targeti ng
regime would have to be adjusted, because i nation
was too high. Goldfajn disa greed and stood his
ground. Ination in 2017 was 2.95 percent, a little
below the tolera nce margin.
Born in Israel, Goldfajn grew up in R io de Janeiro
during a time of profound economic disarray in
Brazil, witnessing four c urrency changes in seven
years and inat ion upward of 80 percent a month.
He earned a PhD from the Massac husetts Institute
of Technology and worked with Asian countries
at the IMF during the late 1990s. He was deputy
governor for economic policy at Brazil’s central
bank in the early 20 00s and chief economist of
Itaú Unibanco, Brazil’s largest ba nk, from 2009 to
2016, before returning as president of the central
bank from June 2016 to February 2019. Recently
named Credit Suisse’s new chairma n in Brazil,
he spoke with F&D’s Andreas Adriano about the
evolution of central bank communicat ions in recent
years and the importa nce of knowing when to
reject the consensus view.
F&D: How was it to cha llenge the enti re
economic establi shment so early in your term?
IG: Sometimes you have to have conviction and go
against the c onsensus of markets, press, and ana lysts.
In my rst two weeks a s central bank governor, in
2016, there was a public debate about whether the
Brazilian ec onomy, coming from an ination rate
of 11 percent, would be able to reach the 4.5 percent
target the following year. We believed it would be
dicult and cha llenging, but possible. ere was
very low demand, signic antly below the economy’s
potential after t wo years of recession. It therefore
seemed eminently reasonable to me that if we cou ld
coordinate expectations and change the direction
of economic and monetary policy, we could reach
the target. It was a wi se decision: ination in 2017
dropped to 2.95 percent, below target.
You also broke with expectations at the
end of your term.
IG: By 2018, ination was still below target.
Expectations were anchored, but interest rate s were
rising in the United States, drivi ng up rates in emerg-
ing economies. So it seemed that Braz il should also
raise its rates. However, with the economy recover ing
slowly—though still below its potential—and
low ination, our framework did not recommend
raising rates. For the second time, then, both at
the beginning a nd at the end of my term, we went
against the consensus.
F&D: In the end, it was about tr usting your own
regime, stick ing to your own rules?
IG: Exactly. A lot of people said we were being
too orthodox. But occasionally you need to have
convictions based on the regime a nd on your own
instincts to cha llenge consensus.
F&D: Both case s showed a need to communicate
more proactively. How did you do that?
IG: We had a major boost in transparency, chang-
ing the monetary polic y decision announcement
and the minutes. We tried to communicate in
simpler, more concise, and straightforward lan-
guage, seeking better understanding of our actions,
especially what we would do, dependin g on what

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