Monetary Policy in an Election Year

BRAZIL ECONOMICS - Report 07 Apr 2014 by Marcelo Gazzano, Cristina Pinotti and Affonso Pastore
Executive Summary The administration is faced with the unsavory prospect of an election year with weak economic growth combined with high inflation, with virtually no ammunition (fiscal or monetary) to improve matters in the short run. In 2011 and 2012 it pushed the interest rate substantially below the neutral level, and a good part of the current tightening cycle, which has raised the SELIC rate by 375 basis points, has only put it back near the neutral rate. If the government wants to reduce inflation, it will have to continue raising the interest rate. But in an election year any decele...

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