Inflation, Exchange Rate and the COPOM

BRAZIL ECONOMICS - Report 26 Aug 2013 by Marcelo Gazzano, Cristina Pinotti and Affonso Pastore
The COPOM will meet this week to decide on the new increment of the SELIC rate. A few days ago, in response to the upward shift in the yield curve reflecting the higher perceived probability of an impending hike of 75 basis points, Mr. Tombini hastily declared that “the yield curve has an excessive premium” (the clear message being that the increase will only be 50 points). This forecast was strengthened by the decision last week to replace the ad hoc interventions in the foreign exchange market, spaced at unpredictable intervals, with a clear and transparent rule by which the Central Bank ...

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