Economic Activity and Inflation

BRAZIL ECONOMICS - Report 14 Feb 2022 by Affonso Pastore, Cristina Pinotti and Paula Magalhães

The latest information, including the IBC-Br, indicate that GDP in the fourth quarter probably expanded marginally, leading to growth of 4.7% in 2021. Brazil is entering 2022 with the one-year ex ante real interest rate (the rate relevant to determine economic activity) above 6.5%, an extremely restrictive level.

To avoid an even greater unanchoring of inflation expectations in 2023, the Central Bank has repeatedly stated its commitment to pursue the target, indicating that the tightening cycle will continue “for some COPOM meetings”, with a terminal rate above 12%.

Due to the long lags of monetary policy, part of its effect will only be felt in 2023, but what is already determined for 2022 will probably lead to contraction of GDP in the second half.

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