Monetary policy: For now, no changes

BRAZIL ECONOMICS - Report 01 Oct 2018 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

In October a new president will be elected, and the continuing success of monetary policy in meeting the inflation target will depend on the new government’s guidelines for conduction of fiscal policy. Irrespective of who is elected, the SELIC rate will be raised at some point, since it is below all reasonable estimates of the neutral interest rate. We have been insisting, however, that the timing of this elevation will depend on the success of the new government in winning approval of the most important fiscal reforms, especially of the pension system. The details of those reforms and other actions in the fiscal field are fundamental to determine both the efficacy of monetary policy and its next steps.

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