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Monetary Policy in Bolivia

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Monetary Policy in Bolivia Money and Banking Conference Central Bank of Republic of Argentina MonetaryMonetary PolicyPolicy inin BoliviaBolivia LessonsLessons fromfrom thethe LatestLatest EconomicEconomic CrisisCrisis Gabriel Loza Tellería President of the Central Bank of Bolivia Buenos Aires, September 2010 Dealing with the Structural Crisis of Capitalism • Bolivia is a small open economy characterized by partial dollarization, low trade and financial integration to global markets. • Exports are highly concentrated on commodities. Therefore, Bolivian transmission mechanisms of external shocks are particular. • Direct mechanisms come through international prices, specially commodities, and remittance flows. • Indirect mechanisms include exchange rate as well as interest rates volatility of major economies and neighbor countries. • Bolivian economy has experienced two major events: Source: National Institute of Statistics Institute National Source: economic crisis. economic food and fuel prices between 2007 and 2008; and the Inflation Rate : , Monthly interanual and cummulati External Shocks and Bolivian economy: economy: andBolivian Shocks External Inflation upturn and Financial crisis Financial and upturn Inflation (%) ve 10 12 14 16 18 -2 0 2 4 6 8 Source: National Institute of Statistics Institute National Source: Jun-05 Ago-05 Oct-05 Alimentos Sin Subyacente Nucleo IPC Dic-05 Feb-06 Abr -06 Jun-06 Ago-06 Oct -06 Dic-06 Core Inflation Measures Feb-07 Abr -07 Jun-07 the abrupt increase in Ago-07 %) (oya, Oct-07 Dic-07 Feb-08 effects of global 14,5 17,3 5,4 Abr-08 10,4 Jun-08 Ago-08 Oct-08 Dic-08 Feb-09 Abr-09 Jun-09 Ago-09 Oct-09 Dic-09 Feb-10 Abr-10 Jun-10 2,8 1,7 1,6 100 -60 -40 -20 • Second external shock: Monetary policy was expansi • First external shock: Monetary policy was contract 20 40 60 80 0 Source: Worl Source: Bank stability attenuated external volatility transmissi volatility external attenuated stability Sep -04 accumula and mini revaluations by characterized was Dic-04 Mar -05 International pricesof oiland food Alimentos Energía Jun -05 Sep -05 Dic -05 Mar -06 Jun -06 Sep -06 Dic -06 (oya, %) Mar -07 Jun -07 Sep -07 policies Countercyclical Dic -07 Mar -08 Jun -08 Sep -08 Dic-08 Mar -09 Jun -09 Sep-09 Dic -09 Mar -10 Jun -10 19,6 6,4 Sources Central Bank of Bolivia of Bank SourcesCentral Millones de Bs 10,000 -5,600 -5,200 -4,800 -4,400 -4,000 -3,600 -3,200 -2,800 -2,400 -2,000 -1,600 -1,200 1,200 1,600 2,000 2,400 2,800 3,200 3,600 4,000 4,400 4,800 5,200 5,600 6,000 6,400 6,800 7,200 7,600 8,000 8,400 8,800 9,200 9,600 -800 -400 400 800 0 1 3 5 7 9 on. 11 13 15 OMA InyecciónNeta InyecciónBruta 17 (Millions of bs.accumulated in the year) 19 21 23 ive; ive; and the exchange rate policy 25 Grossand net liquidity inflow 27 29 2008 31 reserves. tion of international 33 35 37 39 41 43 45 47 onary and exchange rate 49 51 1 3 5 7 Semanas 9 11 13 15 17 19 21 23 25 27 29 31 2009 33 35 37 39 41 43 45 47 49 51 53 2 4 6 8 10 12 14 16 18 20 22 2010 24 26 28 30 32 • Expansionary monetary policy: net treasury bills m Source: Central Bank of Bolivia of Bank Central Source: 10 12 14 16 18 0 2 4 6 8 Dic -07 rates. market decline of money market rates, partially transmitte Ene -08 Tasa títulosTasa públicos Feb -08 Mar -08 Abr -08 May -08 Jun -08 Jul -08 Ago -08 policy monetary Countercyclical Sep -08 Oct -08 Domestic Nov -08 Dic -08 Ene -09 Feb -09 Tasa Activa Tasa Mar -09 Abr -09 May -09 Monetary policy and financialinterest rates Jun -09 Jul -09 Ago -09 Sep -09 Oct -09 Tasa Pasiva Tasa Nov -09 Dic -09 Ene -10 Feb -10 Mar -10 Abr -10 May -10 Jun -10 Jul -10 (%) 10 12 14 16 0 2 4 6 8 Dic -07 Ene -08 Tasa títulosTasa públicos Feb -08 Mar -08 Abr -08 May -08 Jun -08 d to the interbank and financial Jul -08 Ago -08 aturity induced a substantial Sep -08 Oct -08 Nov -08 currency Foreign Dic -08 Ene -09 Feb -09 Tasa Activa Tasa Mar -09 Abr -09 May -09 Jun -09 Jul -09 Ago -09 Sep -09 Oct -09 Nov -09 Tasa Pasiva Tasa Dic -09 Ene -10 Feb -10 Mar -10 Abr -10 May -10 Jun -10 Jul -10 Countercyclical monetary policy • This behavior contributed to a higher domestic credit to private sector growth, mainly in domestic currency, which implied lower dollarization. Domestic Credit to Private Sector Growth (oya, %) Source: Central Bank of Bolivia Reserve requirement policy • Bolivian reserve requirement policy was different from conventional policies, even in dollarized countries. Foreign currency requirement was increased to discourage dollarization, while domestic rate was reduced to promote credit growth. Bolivia : Reserve Ratio (Percentage) 35 Encaje Marginal Moneda Extranjera 30 25 Efectivo Titulos 20 Moneda Extranjera Moneda Nacional 15 10 5 0 Actual Actual Actual Anterior Anterior Anterior Regimen Regimen Regimen Regimen Regimen Regimen Regimen Regimen Source: Central Bank of Bolivia • Bolivian exchange rate policy was unconventional a price stability achieved since September 2009. since September achieved stability price anchored foreign exchange market outlook. Furthermo Source: Central Bank of Bolivia of Bank Central Source: 10 12 14 16 18 0 2 4 6 8 Dic -06 inflat expected and observed appreciation, Nominal Ene -07 Feb -07 stability rate Exchange Mar -07 Abr -07 May -07 Jun -07 Jul -07 Ago -07 Sep -07 Oct -07 Nov -07 Dic -07 Ene -08 Feb -08 Mar -08 Abr -08 May -08 (oya, (oya, %) Jun -08 Jul -08 Ago -08 Sep -08 Oct -08 Inflación anual Nov -08 deTasa apreciación a 12 meses (eje derecho) Inflacionesperada en un año Dic -08 Ene -09 Feb -09 Mar -09 Abr -09 May -09 Jun -09 Jul -09 Ago -09 s well. Zero rate of crawl policy Sep -09 Oct -09 re, it has been consistent with Nov -09 Dic -09 Ene -10 Feb -10 Mar -10 ion Abr -10 May -10 Jun -10 Jul -10 0 -10 -2 -4 -6 -8 Exchange rate stability • Bolivian case is a clear example of low exchange rate volatility during the crisis, while other currencies showed sudden movements. Exchange rate in selected economies (Index, January 2003 = 100) 130 Argentina 117 120 Bolivia 110 100 Perú 94 90 Colombia 80 80 70 70 Chile 63 60 Brasil 50 50 40 30/01/2003 30/05/2003 30/09/2003 31/01/2004 31/05/2004 30/09/2004 31/01/2005 31/05/2005 30/09/2005 31/01/2006 31/05/2006 30/09/2006 31/01/2007 31/05/2007 30/09/2007 31/01/2008 31/05/2008 30/09/2008 31/01/2009 31/05/2009 30/09/2009 31/01/2010 31/05/2010 Sources: Bloomberg - Central Bank of Bolivia • Exchange rate policy preserved purchasing power of Source: Central Bank of Bolivia of Bank Central Source: 100 105 110 115 120 80 85 90 95 without persistent misalignments. persistent without Jun -90 May -91 Abr -92 Real ExchangeReal Rate, 1991-2010 Mar -93 (Index, August 2003 = 100) Feb -94 Ene -95 Dic -95 Nov -96 Oct -97 Sep -98 Ago -99 Exchange rate stability rate Exchange Jul -00 Jun -01 May -02 Abr -03 Mar -04 Feb -05 Ene -06 Dic -06 Nov -07 Oct -08 Sep -09 Ago -10 96.25 100 105 110 115 120 80 85 90 95 1991 1992 1993 Equilibriumand Observed RER 1994 (Index, August 2003 = 100) 1995 1996 1997 1998 1999 2000 2001 the local currency 2002 2003 2004 2005 2006 2007 2008 2009 2010 Low risk indicators • Sustained increase of international reserves and “twin surpluses” have helped to reduce macroeconomic vulnerability and country risk. Bolivia: Risk Indicators (As % of GDP) Total Public Debt = 42,3% of the GDP (2009) 60 External Debt = 14.9% of the GDP (2009) 60 49 50 Domestic Debt = 27.5% of the GDP (2009) 49 50 40 40 30 30 20 20 RIN (% PIB) Cuenta Corriente(% PIB) 10 RIN (% PIB) Cuenta Corriente(% 4,6PIB) 10 4,6 0 0 0,1 -10 0,1 -10 Resultado Fiscal (% PIB) -20 Resultado Fiscal (% PIB) -20 -30 -30 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Macro prudential regulation Macro prudential measures were implemented and / or coordinated by the Central Bank, with the Executive Branch and Regulatory Authority of Financial System (ASFI): • Improvement of the formula to calculate a reference rate for financial intermediation (Tre). • Upper limits to foreign assets of financial institutions. • Lower loans provision and stimulus for the creation of guarantee funds. • Implementation of rules for financial institutions to regulate penal interest rates on default circumstances. • Monetary and exchange rate policies, liquidity reg inflation. rate revaluation/stability and reserve requirements Effects of the central bank policies central of the Effects -20 -15 -10 10 Sources: National Institute of Statistics – Statistics of Institute Sources:National Central -5 0 5 Dic-01 Abr-02 inflat on Estimatedpolicies of Central effect bank Ago-02 Dic-02 Abr-03 Ago-03 Dic-03 Abr-04 (Annual change, %) change, (Annual Ago-04 Promediomóvilaceleración dela de la inflación Aportepolítica monetaria Aportepolítica cambiaria Dic-04 Abr-05 bank of Bolivia of bank Ago-05 Dic-05 Abr-06 Ago-06 Dic-06 Abr-07 Ago-07 Dic-07 measures have reduced Abr-08 ulation, foreign exchange Ago-08 Dic-08 ion Abr-09 Ago-09 Dic-09 Abr-10 • With good financial system soundness, “bolivianiza Sources: Central Bank of Bolivia of Bank Sources:Central has continued, even among the crisis.
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