Policymakers raised rates for the fourth straight meeting, in an attempt to stop the real depreciation and curb inflationary expectations. Yet, given that the Brazilian economy may fall into recession, it is not urgent to tighten monetary policy anymore.
In the past six months, Brazil’s real lost more than 24 percent against the USD (9 percent since the beginning of 2015), as investors show concerns over the country’s growth outlook. In January, the inflation rate hit a 3-1/2-year high of 7.14 percent and in the mid-month to February the prices rose to 7.36 percent.
According to a recent central bank survey, the economy is expected to shrink 0.58 percent in 2015, the worst contraction in 25 years. Retail sales have been slowing since mid-2014 and edged up a meager 0.3 percent year-on-year in the last month of 2014. Also, in January, industrial production shrank by 5.2 percent year-on-year, the eleventh consecutive month of contraction. In spite of weak growth numbers, in the first month of 2015, the government announced a series of tax increases aiming at raising government revenues which are likely to hurt consumption and create additional inflationary pressure.