Navigating Brazil’s Path to Growth by Otaviano Canuto published by World Bank Group (2015).
“Brazil’s macroeconomic management faces four major immediate challenges. The response to them will be strengthened if economic agents could have some indication of how the Brazilian economy will be steered back to a growth route.
The first challenge will be the upward realignment of domestic regulated prices in a context of inflationary pressures that are still high. Since the second half of 2012, inflation has remained near or above 6.5% – the upper limit of the target. In recent years, the main inflationary factors – services and non-tradable goods – appear to be slowing down. However, the ongoing correction of regulated prices, until recently repressed, has still some way to go (Chart 1).
Difficulties to decelerate inflation will be compounded by another potential challenge: the pressure towards local currency depreciation that will likely accompany the process of normalisation of US monetary policy. Some increase of interest rates is expected for 2015. At the very least there will be higher volatility of interest and exchange rates. This tends to lower the attractiveness of Brazilian securities…”
