Economic Policy Changes: What is the Importance?

BRAZIL ECONOMICS - Report 14 Oct 2013 by Marcelo Gazzano, Cristina Pinotti and Affonso Pastore
Executive Summary The Central Bank indicated there will be one more increase of 50 basis points in the SELIC rate. The 12-month forward-looking inflation expectations stand at 6.2%, and assuming a neutral real interest rate between 4% and 5%, the SELIC rate would have to be raised higher than 10.5% in the first case and above 11.5% in the second. But the final choice depends on what the Bank’s implicit inflation target is; all indications are that it’s higher than 5.5%, perhaps near 6% a year. In this case, its preference will not be to raise the rate very far above the neutral level, and i...

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