Brazil has more monetary policy space in the event of global crisis
Frederick Searby, who is a Latin America strategist at Deutsche Bank AG, discussed Brazil’s stock market, economy and monetary policy with Lisa Murphy on Bloomberg Television’s "In the Loop." He says that Brazil has the opposite problem of the developed economies in that it is dealing with overheating and inflation while the developed economies have a serious deflationary undertow.
His view is that liquidity has dried up somewhat due to ‘political risk’ – Petrobras last year and the capital controls in the ongoing currency war this year being notable examples. That is a negative overhang for markets in Brazil. However, if there is a crisis like in 2008, Brazil can cut rates and probably will start doing so. That gives it more policy space than we see in the US where rates are zero percent.
Video below
Just absolutely unbelievable. Brazil’s 12.5% interest rate will work about as well in “cooling off inflation” as Iceland’s 18% (yes!) interest rates in the summer of ’08. You heard it here first.
We should just have a public burning of all economic textbooks, if this is all the good we are getting out of them.
Yes, as I’ve said before in this blog, interest rates setting by central banks can do just so much at cooling the economy or stopping bubbles.
Joke policies, when they should just leave rates at 0% and RAISE capital collateral and obligatory reserves.