Death knell sounds for Brazil’s economic strategy
Baku, April 11 (AZERTAC). Until recently, the government of Brazil’s President Dilma Rousseff talked glowingly about a “new matrix” of economic policies that would revive the country’s faltering growth story.
This strategy, consisting of historically low interest rates, a weakened exchange rate engineered partly through currency controls and temporary tax breaks for industry, was meant to restore Brazil to a 4 per cent growth rate.
This month, however, the death knell seemed to sound on the new economic matrix. Persistent inflationary pressures have forced Brazil’s central bank to jack interest rates back up from a record low of 7.25 per cent in 2012 to 11 per cent last week, with the possibility of more increases to come.
With growth still fragile and the government’s credibility on the line following a credit rating downgrade last month by Standard & Poor’s, the question facing investors in Brazil now is how quickly can policy makers unwind the new economic matrix and return to more orthodox ways, assuming they have the political will to do it.
The result was a situation of low growth and high inflation. Brazil’s economy this year is set to grow at about 2 per cent, continuing one of its slowest rates of expansion since the 1990s. Meanwhile, inflation, expected to reach 6.3 per cent this year, is near the top of the central bank’s band of 4.5 per cent plus or minus 2 percentage points.
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