Brazil has increased their interest
with the intention of having an aggressive rate of monetary tightening to stop
high inflation. Bringing down the inflation will allow for more investment to
take place in the country. Brazil’s central bank voted unanimously to increase
the benchmark Selic rate to 12.25%. They
want to bring the 12-month inflation to 4.5% midpoint of the official inflation
range by 2016. However the president administration plans on having many
spending cuts and increases the price of electricity and bus transportation,
which could counteract what the central banks plan is.
http://www.nytimes.com/2015/01/22/business/international/brazil-raises-interest-rates-to-help-curb-inflation.html?src=busln&_r=0
3 comments:
I feel like in a developing economy like Brazil's, where income is extremely unevenly distributed and the majority of population is poor, the increased price of electricity and bus transportation will have a negative impact on inflation which will be greater than the positive impact due to raise in interest rates because majority of the poor folks are affected by the bus costs and the raise in electricity will raise cost of production which again can impact inflation negatively.
It will be interesting to see what prevails in Brazil. I anticipated a jump in GDP from the infrastructure and capital expenditures surrounding the world cup and Olympics. This does not appear to be the case, seeing as Brazil has grown slower than most of Latin America. Do you think that the central banks actions will be enough to suppress inflation with the announcement of new taxes this week? I believe Brazil needs to widen its middle class in order to boost GDP and get the economy back on track.
I agree with Haris. It seems that there will be quite the negative impacts resulting from this policy change. The lower side of the income distribution will be strongly effected in their ways of transportation or basic necessities. It will be interesting to follow along with this matter and see what results from it.
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