Economic Activity: Has Any Monetary Policy Signal Changed?

BRAZIL ECONOMICS - Report 02 May 2017 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

What really matters for the Central Bank to maintain the strong monetary easing cycle? One condition is approval of a pension reform that consolidates the picture of lower risks, preventing the exchange rate from depreciating. However, both the size of the cycle and the magnitude of the next cuts depend crucially on economic activity. The first signs of a rebound of fixed capital investments are not yet in sight, and despite the uptick in real retail sales observed in January, neither the job market nor new lending justify forecasting that household consumption has started to recover.

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