The Puzzle of Brazil's High Interest Rates
IMF Working Papers, February 1, 2012
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Bibliographic details
- Authors: Alex Segura-Ubiergo
- Published: February 1, 2012
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781463938390.001
Executive summary
- Real interest rates in Brazil have declined substantially over time, but remain well above the average of emerging market inflation targeting regimes.
- Adoption of an inflation-targeting regime and improved economic fundamentals (reduction in inflation volatility and improvements in the fiscal and external positions) have helped Brazil sustain significantly lower real interest rates than in the past.
- Brazil can converge toward lower equilibrium real interest rates if domestic savings increase to the level of other emerging market countries; the effect is particularly pronounced if the increase in domestic savings is achieved through higher levels of public savings.
- Controlling for variables in the econometric model, real interest rates in Brazil are about two full percentage points higher than in other countries in the sample, indicating Brazil-specific factors not captured by the model.
- Possible Brazil-specific factors include credit market segmentation and inflation inertia generated by pervasive indexation practices.
Key findings and quantitative points
- Real interest rates in Brazil: declined substantially over time (no numeric trend series provided on the page).
- Brazil vs. emerging market inflation-targeting regimes: Brazil’s real rates remain "well above the average" (no numeric average provided on the page).
- Econometric residual: about two full percentage points higher in Brazil relative to other countries in the sample ("about two full percentage points").
- Publication metadata with exact numeric values:
- Pages: 20
- Volume: 2012
- Issue: 062
- Series: Working Paper No. 2012/062
- Stock No: WPIEA2012062
- DOI: https://doi.org/10.5089/9781463938390.001
- ISBN: 9781463938390
- ISSN: 1018-5941
- Author and date: By Alex Segura-Ubiergo; February 1, 2012
Policy-relevant implications
- Strengthening domestic savings is central to lowering equilibrium real interest rates in Brazil; policy measures that raise public savings could have particularly large effects.
- Continued emphasis on inflation-targeting and policies that reduce inflation volatility and improve fiscal and external positions supports lower real interest rates.
- Addressing Brazil-specific structural frictions—such as credit market segmentation and indexation-driven inflation inertia—may be necessary to close the remaining roughly two percentage point gap.
Research scope and framing
- Type: IMF Working Paper (research in progress; views expressed are those of the author(s) and do not necessarily represent those of the IMF or IMF policy).
- Subject areas listed: Domestic savings, Emerging and frontier financial markets, Financial markets, Financial services, Inflation, Inflation targeting, Monetary policy, National accounts, Prices, Real interest rates.
- Keywords listed: Brazil, Brazil's real interest rates, domestic savings, East Asia, Emerging and frontier financial markets, emerging market, equilibrium real interest rate, fiscal policy, Inflation, Inflation targeting, inflation targeting country, inflation volatility, inflation-targeting regime, interest rates, real interest rate, Real interest rates, real interest rates in Brazil, South Asia, WP
IMF Working Paper — The Puzzle of Brazil's High Interest Rates; By Alex Segura-Ubiergo; February 1, 2012; Working Paper No. 2012/062; Pages: 20; DOI: https://doi.org/10.5089/9781463938390.001
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