Disinflation, Uncertainty and Falling Interest Rates

BRAZIL ECONOMICS - Report 12 Jun 2017 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

Inflation is decelerating further still, and the signs indicate it will be significantly below the target at year-end. Because of the huge slack in the production factors and anchored inflation expectations, there is room for the Central Bank to continue its easing cycle. However, the Central Bank made it clear, in its last communication, that the current political crisis has increased the level of uncertainty, requiring greater caution in conducting monetary policy, meaning the relaxation will probably be less intense than previously estimated.

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