There is nothing like an election to focus the mind of the politician and so it has been in Brazil. The regime of Dilma Rousseff is in trouble and that has prompted an all-out effort to boost the fortunes of the economy with waves of cash.
The Brazilian central bank is dumping another $4.5 billion into the system through lowering the reserve ratios for the banks. It is not clear if this will really have the desired impact as access to money has not been the major issue for small and medium-sized business. The hope is that there will be a little bump in the economy, and that it will be sufficient to get support back in the Rousseff camp.
The real worry is that all this largesse will only worsen the already apparent inflation problem, something Brazil has been forced to combat numerous times in the past after a prosperous period. The target as far as inflation is concerned has been 4.5%, but the average over the last year has been between 6% and 8%. The expectation is that this surge of cash will drive the rate above 8% again.
- Armada Corporate Intelligence