Brazil Leaves Interest Rate Unchanged at 14.25%

Part of the syllabus: Macroeconomics
Source: The Wall Street Journal
Date of the article: 2015-09-02
Link to article: Brazil Leaves Benchmark Interest Rate Unchanged at 14.25%
A fantastic IB Economics Internal Assessment article about Brazil with loads of things to talk about.

Possible talking points:

  • Explaining how Brazil’s central bank hopes to lower inflation by keeping interest rates high. There are two ways of looking at this:
    • If it’s demand-pull inflation, then high interest rates should decrease consumption and investment, leading to falling aggregate demand and falling inflation.
    • If it’s cost-push inflation, high interest rates should lead to appreciation of currency. Therefore, fall in prices of imports (gas/fuel mentioned in the article) and production costs.
  • Unemployment is growing, GDP is falling, however inflation is slower to decrease – a good discussion/evaluation point to consider
  • Commodity exports to China and the slowdown is mentioned – possible point for evaluation or discussion. How this affects the economy, the value of real and inflation (however, be careful not to drift to International Economics part of the syllabus)
  • Evaluate the view that high interest rates should lead to appreciation of real (what if investors think it’s a desperate attempt? or have little confidence in the economy as discussed in the article)
12:46 pm