Comments on: Investors call for interest rate hike in Brazil http://blogs.reuters.com/macroscope/2013/03/21/investors-call-for-interest-rate-hike-in-brazil/ Shining a light on the dismal science Wed, 16 Nov 2016 01:39:19 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: dp1234 http://blogs.reuters.com/macroscope/2013/03/21/investors-call-for-interest-rate-hike-in-brazil/comment-page-1/#comment-17028 Fri, 22 Mar 2013 12:21:14 +0000 http://blogs.reuters.com/macroscope/?p=9788#comment-17028 Brasil does not need a rate hike. On the contrary, Brasil needs to lower rates further (gradually) to 5%. Most of the inflationary pressure is coming from the Services sector which is approx. 50% of the economy. There are also tertiary pass thru pressures from the (food) commodities sector (caused byQE U$ debasement). Interest rate hikes will not resolve this.

What Brasil needs is a tax reform – targeted piecemeal (easier) or comprehensive (difficult). This is already happening – electricity, attempted ICMS reduction & standardization, basic food staples & so on. This takes 3 to 6 months to feed thru & positively impact the system. The BRL should also be maintained at an exchange rate of 2.05 to the U$.

Investments in infrastructure can be spurred by financial incentives (higher, safer & more stable returns than other parts of the world) & eliminating redtape. Lower interest rates actually help this process as Capital is more efficiently allocated to the Productive vs. Financial/speculative sector. The government should also continue its policy of discouraging short term speculative ‘hot money’ by regualating the IOF tax as necessary, taxing high frequency trades & keeping a close eye on the financial shenanigans of the likes of GS etc.

These so called ‘investors’ who are pushing for interest rate hikes are bankster/hedge fund/speculator types engaged in the carry-trade & other forms of destructive financial speculation & Capital misallocation.

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