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COUNTRY INSIGHTS

The Monetary Easing Cycle Intensifies
BRAZIL ECONOMICS · Report · 16 Jan 2017

At the last COPOM meeting, the Central Bank not only cut the SELIC rate by 75 basis points, it also indicated that until a contrary indication this will be the pace of cuts for the coming meetings. This dragged down the longer term interest rates. It was a correct decision in light of the steep d...

Economic Activity is Still Weak
BRAZIL ECONOMICS · Report · 09 Jan 2017

In our last Quarterly Outlook we projected a slow recovery of economic activity starting in the second quarter of 2017. Despite the slight improvement in some indicators, the most recent data still show signs of contraction of both household consumption and gross fixed capital formation. GDP prob...

Synthesis of the Brazilian Economy
BRAZIL ECONOMICS · Report · 12 Dec 2016

Although we expected an increase in the political tension around the approval of the spending cap PEC in the Senate, we did not imagine that the political conflict would spill over into a confrontation between the legislative and judicial branches, with reputational costs that are hard to assess....

Fiscal Adjustment: Next Steps
BRAZIL ECONOMICS · Report · 12 Dec 2016

With the likely final approval by the Senate (second floor vote) of the PEC that freezes spending in real terms, the government will have finished the first step of a profound fiscal adjustment. The second step is the social security reform, with the establishment of a minimum retirement age and ...

Political Turbulence and Worse Growth Perspectives
BRAZIL ECONOMICS · Forecast · 06 Dec 2016

The Temer administration has won some important victories, in particular the wide approval margins in the two floor votes in the Chamber of Deputies and first one in the Senate on the proposed constitutional amendment (PEC) to cap spending growth in real terms. But alongside this unquestionable s...

Monetary Policy in the Midst of a Profound Recession
BRAZIL ECONOMICS · Report · 05 Dec 2016

The Central Bank’s only mandate is to meet the inflation target. But its decisions are not made in a vacuum. Rather, it takes the decisions prying to minimize a loss function involving two costs: the distance of (projected) inflation from the target; and the distance of GDP in relation to potenti...

How Intense will the Monetary Easing Cycle be?
BRAZIL ECONOMICS · Report · 28 Nov 2016

To gauge the intensity of the interest rate cut, the Central Bank will observe three sets of information, regarding: a) inflation and economic activity; b) approval of fiscal adjustment measures; and c) the effects of “external shocks” that alter the trend of the exchange rate. In the past 45 day...

External Shock and Increased Risks
BRAZIL ECONOMICS · Report · 21 Nov 2016

The depth of the recession and clear signs of waning inflation until recently indicated a growing probability that the Central Bank could increase the pace of lowering the interest rate. But with the election of Donald Trump, capital that was going to emerging countries has shifted back to the Un...

Facing Challenges
BRAZIL ECONOMICS · Report · 16 Nov 2016

Despite important political victories, such as approval in the Chamber of Deputies of the proposed constitutional amendment (PEC) to cap real spending growth, in the next fiscal policy moves the government will face substantial difficulties. The first is the worse outlook for growth in 2017, whic...

The Trump Effect
BRAZIL ECONOMICS · Report · 14 Nov 2016

Although it is too soon for a precise evaluation, Donald Trump’s election in the United States has altered the scenario for emerging markets. The bet on greater fiscal stimulus and an increase in infrastructure investments has changed the forecasts regarding elevation of the interest rate and att...

The Frustrated Bet on Fast Return to Growth
BRAZIL ECONOMICS · Report · 07 Nov 2016

The most recent data on economic activity indicate GDP contracted again in the third quarter. Due to the shrinkage of world trade and weak commodity prices, there is no hope for exports to act as a force to drive recovery. Nor can this be expected from household consumption, which continues being...

Does corruption help or hurt the economy?
BRAZIL ECONOMICS · Report · 02 Nov 2016

This is an article from O Estado written by Maria Cristina Pinotti​. Here and there arguments arise that the fight against corruption ignores the way the economy works in the “real world”. After all, bribes to speed up authorizations for investments should be favorable to growth. The aim here is...

Effects of an Obstructed Credit Channel
BRAZIL ECONOMICS · Report · 31 Oct 2016

The credit channel is important in transmitting the effects of monetary policy. The literature contains strong evidence that the supply of credit and bank spreads magnify the effects of the interest rate on economic activity. Unfortunately, Brazil is currently passing through an unprecedented sit...

What Will be the Size of the Easing Cycle?
BRAZIL ECONOMICS · Report · 24 Oct 2016

Various controversies exist in the financial market regarding the execution of monetary policy. One of them refers to the size of the total cut in the interest rate. Another involves the pace of the initial movements by the Central Bank. The past few days have been marked by critiques by those wh...

Frustration over Economic Activity and the Reaction of Monetary Policy
BRAZIL ECONOMICS · Report · 24 Oct 2016

Last week a large number of indicators were disclosed strengthening the expectation of further contraction of GDP in the third quarter. If this is confirmed – and the probability is high – Brazilian society will be “rewarded” with the worst recession since CODACE (Committee for Dating Economic Cy...

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