Interest rates and inflation in Brazil
Brazil's economy has experienced rapid growth in recent months after it officially emerged from recession in mid 2009. During the first quarter of 2010 alone the country experienced huge growth of nine per cent, the central government announced recently.
Following a recent consultation with Brazil, the International Monetary Fund (IMF) said the "strength of the financial system and the combination of fiscal responsibility, exchange rate flexibility, and a credible commitment to inflation targeting" which the country has adopted in recent years has allowed it to weather the global economic crisis well.
The IMF directors "agreed that monetary policy should remain focused on keeping inflation expectations well-anchored" in the future.
Central Bank Measures
The massive levels of growth led some to believe that the Brazilian economy could be overheating, although the authorities have always maintained that tight fiscal policies would be put in place to ensure that this would not occur.
Brazil's central bank said that it had already seen the inflation risk drop when it announced an increase in the benchmark interest rate recently. The Selic was at its all time low of 8.75 per cent earlier in the year before a number of monetary policy decisions brought the rate to the current 10.75 per cent.
The move was accompanied by the assurance that growth has now moved towards more sustainable levels.
Bloomberg quotes the Bank as stating that Brazil's "economy may have settled into a pace that is more in line with growth levels considered sustainable in the long term, as opposed to what was seen in the first quarter".
The rate is expected to increase further in the coming months and could possibly reach 11.75 per cent by the end of 2010.
This is not the only step that the government has taken to ensure that the economy does not overheat. Indeed many of the measures that were put in place during the global recession have now been withdrawn, a step that was welcomed by the IMF.
Growth Forecast
It would seem that the IMF is not the only organisation that believes the fiscal policies in place in Brazil have had a positive effect on the economy.
Projections released by the IPEA – the government's economic research institute – suggested that the economy should grow by a sustainable six per cent this year, the Wall Street Journal reports.
According to the IPEA, even if a slowdown is seen in the second half of the year, the country's strong economy should be able to sustain such growth levels.
"Even if the economy remains stagnant in the coming quarters, it would nonetheless register six per cent growth from 2009," the institute was quoted as saying.
It predicted that the rate of growth may be lower than during the first half of the year owing to outside influences and the withdrawal of government measures, but the "majority of fundamentals that have explained the good performance of the GDP [gross domestic product] since the second half of 2009 are still present in the economy".
The IMF predicts that real GDP will increase by 7.1 per cent, following the minor decline of 0.2 per cent in 2009.
Looking ahead, the IMF said it "endorsed the government's development strategy, with an emphasis on increasing investment, both public and private, over the medium term, especially for infrastructure projects".
