Central Bank of Brazil

March 3, 2016

Brazil is gripped by an extreme case of stagflation.  In all likelihood, GDP will post a second straight contraction this year of more than 3.0% despite Brazil’s hosting of the summer Olympic Games.  And CPI inflation was 10.7% in January and rising, thanks to the pass-through of real depreciation.  The Zika virus has pressed the country into panic mode, which as so often is the case leads to frozen inaction on the policy front.  Until last July, the central bank’s monetary policy committee, Copom, was aggressively raising interest rates to counter inflation.  The Selic Interest rate was raised from 7.25% to 11.0% between April 2013 and April 2014 and lifted by a further 325 basis points in seven moves from October 2014 through the meeting of July 29, 2015.  Since then amid mounting global and domestic distress, Copom has kept the Selic rate at 14.25%, its most elevated level since October 2006.  But the eight-person committee isn’t united in viewing the current stance appropriate.  The latest policy meeting drew two dissenting votes favoring a rate increase of 50 basis points to 14.75%.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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