Brazil’s inflation is above target. The central bank cut interest rates by 0.5% at the end of August, on the expectation that slower global growth would hurt Brazil’s exporters. That may well happen, but the immediate impact has been a rise in domestic inflation, to just over 7%.
The Real has depreciated by 13% against the dollar and the Bovespa stock market has fallen 22%. Despite the opportunity for ‘bargain hunting’, overseas fund managers are avoiding the Brazilian market, at least until the eurozone crisis is resolved.
Welcome to globalisation: fiscal and monetary events in one part of the world can have a big impact on prosperity and standards of living in another.
It remains to be seen how the relative sizes and timings of the different forces affecting the Brazilian economy will work themselves out.
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