by Vincent Bevins
New Tools for Old Problems
Faced with an over-valued real the Brazilian government is relying on a wider set of ‘macro-prudential’ measures to fight inflation.
Brazilian authorities have been resorting to less
conventional methods to tackle rising prices as a way to avoid
strengthening the real through rate hikes. This is uncharted
territory and arguably a risky venture for a country that has a
history of hyperinflation. Markets are not necessarily
convinced the plan will succeed, but understand the need for a
broader set of monetary tools.
Brazil has long been attacking its serious inflation problem
with serious interest rates. The hyperinflation that plagued
the country in the 80s and 90s was brought down with a new
currency, the real, as well as sky-high rates. Fifteen years
after the plano real was put into effect, the
nation still has some of the highest real interest rates in the
world, posing problems for local long-term investment, though
inflation has been under control for some time.
But as last years rapid economic...
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