Good morning! Today, we explain the Central Bank’s balancing act between inflation and growth. Jair Bolsonaro’s next move to counter the crisis. Brazil moves to comply with OECD requirements and enter the carbon market.
Balancing inflation and recession
As we expected, the Brazilian Central Bank hiked benchmark interest rates by 1 percentage point to 11.75 percent yesterday — a five-year peak. And another 1-point increase is on the schedule for the May 3-4 meeting of the bank’s Monetary Policy Committee, “given inflation projections and the risk of a de-anchoring of long-term expectations.”
Why it matters. In its attempt to put the brakes on inflation, the Central Bank has pushed Brazil’s real interest rates to the world’s highest behind Russia — which is at the center of an economic war with the West since invading Ukraine.
- While somewhat effective, this strategy is a slippery slope in a country where consumers are as dependent on credit as Brazil. Citizens are already feeling squeezed by higher prices on daily necessities, and now the cost of borrowing (from credit cards to car and house loans) is getting even higher.
Side effect. The unwanted result of higher interest rates is a chokehold on investments, which are...