Business

Spending cap breach forces Brazil to raise interests higher, and quicker

The Bolsonaro government's decision to ignore constitutional spending limits caused havoc in Brazilian markets, increasing expectations (and concerns) around the Central Bank's latest benchmark interest rate hike

interest rates
Central Bank Chairman Roberto Campos Neto (left) and Economy Minister Paulo Guedes. Photo: Mateus Bonomi/Agif/Folhapress

When it was announced last week that the Brazilian government would poke holes in its federal spending cap to pay for a new wealth transfer scheme and reignite President Jair Bolsonaro’s feeble re-election hopes, markets went into a tailspin. Four key lieutenants of Economy Minister Paulo Guedes tendered their resignation and the São Paulo stock exchange saw losses of over 4 percent in Friday morning trading. On Monday, the Central Bank’s Focus Report survey showed worsening projections for GDP growth, inflation, and the Brazilian Real.

However, the first concrete economic repercussion of the government’s decision to ignore austerity...

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