Barclays sees more macroprudential measures as increasingly likely

Monday, April 25, 2011

There is an increased possibility of Brazil's government implementing more so-called macroprudential measures to fight rising inflation, Barclays Capital said in a research note.

During the last few weeks, the government has implemented several tax-related measures to keep inflation at bay and to avoid further strengthening of the local currency. The measures have included doubling the country's consumer loan tax and a tax hike on capital coming into Brazil from abroad in the form of loans and proceeds from bond issues.

Barclays Capital said the recent decision by central bank BCB to slow down its monetary tightening efforts by raising the benchmark Selic rate by 25 basis points to 12% on April 20 - instead of the 50 basis points that the market was expecting - increases the chances of more macroprudential measures.

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The investment bank also said BCB's current, more dovish stance could lead to a need for a more hawkish stance later on if rising inflation cannot be tamed.