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Policy inconsistency will damage Brazilian economy

Thursday, February 25, 2021

Significance

President Jair Bolsonaro on February 19 announced the change on Twitter. There was major market turmoil, as investors interpreted it as a sign that Bolsonaro was abandoning the remnants of the economic liberalism he promised in his election campaign, in favour of a firmly statist approach.

Impacts

  • Doubts over the governance of state-controlled companies will linger long after the current Petrobras crisis passes.
  • Higher oil prices will stoke already rising inflation.
  • Inflationary pressures will likely lead the Central Bank to increase rates soon.

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