Brazil's central bank hit hard by raising its key interest rate by 1% to 14.25%, its highest level since 2016.
This action aims primarily to contain inflation, which jumped to 5.06% in February. The official target is set at 3% with a tolerance margin of 1.5%.
The increase in the cost of money is also intended to reassure investors and prevent any capital flight that would cause a significant financial crisis.
Slower economic activity should be expected
Brazil's financial leaders consider monetary tightening essential, but it will harm economic activity in the coming quarters by slowing down household consumption and business investment.
Economic activity was already weak in the last three months of 2024, with an increase of only 0.2%. It will remain sluggish this year. After 3.4% in 2024, GDP growth will be around 2% in 2025.
Opportunities for dynamic portfolios
Brazil has significant economic potential that the country finds difficult to exploit because of structural shortcomings that cause prices to spiral out of control as soon as the economy is dynamic.
This generates strong economic fluctuations and financial volatility. Consequently, Brazilian equities are an interesting little diversification only as part of a more dynamic portfolio.
