Forex Trading in Brazil

Brazil’s Central bank: Risks, new and old

Brazil’s once-battered economy is finally showing strong signs of economic growth. The central bank and ministry of finance intend to keep it this way, by controlling inflation and reining in government spending. The Central Bank has pursued an aggressive policy of tight money, in order to prevent the rate of inflation from returning to the double digit levels it breached as recently as 2 years ago. If the central bank follows through on plans to raise interest rates, Brazil could witness the appreciation of its currency, as investors from other countries flock to Brazil in search of higher returns. Some analysts, however, are worried that the central bank may be acting too aggressively in its rate hikes. The Economist reports:

[The central bank's] friends worry not that it is misguided, but that it may now become over-zealous… [Some analysts believe] the central bank should accept a bit more inflation this year—say 5½-6%—rather than aiming to hit the target precisely.