The trend of Brazil’s terms of trade over the last ten years is shown below in the graph.
http://www.tradingeconomics.com/brazil/terms-of-trade
Since 2012 the terms of trade deteriorated from the highest percentage in the country’s history. When the terms of trade are over 100 index points it means that Brazil can buy more imports for any given level of exports. Despite the sharp decline from just below 135 index points in 2011, the terms of trade have been improving since the start of 2016.. At the beginning of 2016 the terms of trade were under 100 index points showing that their imports were more expensive their imports. Since the beginning of 2016, the terms of trade have improved from 95 index points to almost 110 index points. …show more content…
Brazil hit its highest marks in late 2015 after experiencing a trade deficit between 2013 and 2014. The reason for the large surplus was the fact that Brazil was in a recession and the Real was weaker due to a contraction of GDP by 3.8% causing pressure for their central bank to print money. Since the Real lost value it boosted exports because their trade partners could get their goods for a lower price now. Increased demand for their cheaper goods led to Brazil’s increasing trade surplus. Also, the recession caused imports to decline due to lower domestic demand for imports because people were hurt financially by the recession. …show more content…
The years that inflation was closest to the target rate correlates to the country 's growth in GDP as well as other factors discussed earlier in this paper. Brazil’s target rate has been 4.5% since 2005 due to their high rates of growth. Many countries look to keep inflation around 2% but Brazil can afford to target their inflation at a higher rate. In order to keep inflation steady, Brazil manipulates their Selic rate, which is similar to the USA’s federal funds rate. The selic rate then determines interest rates for their country. Currently, Brazil has been in an ongoing recession since the beginning of 2015. Since the rise of inflation outside of the range in 2015, Brazil’s central bank rose the Selic rate to 14% and continues to keep it around that number in order to control inflation. Brazil is so focused on inflation that their central bank’s governor had this to say, “Central Bank governor Alexandre Tombini has been given a mandate in his second term to fight inflation at all costs. If that means interest rates at 14%, then so be it” (Rapoza 2). Clearly, inflation is the most important factor Brazil considers when determining what economic decisions to make. When inflation is on the rise, historically the central bank of Brazil raises interest rates in order to control inflation. Due to this policy, Interest rates in Brazil have generally been higher than the
http://www.tradingeconomics.com/brazil/terms-of-trade
Since 2012 the terms of trade deteriorated from the highest percentage in the country’s history. When the terms of trade are over 100 index points it means that Brazil can buy more imports for any given level of exports. Despite the sharp decline from just below 135 index points in 2011, the terms of trade have been improving since the start of 2016.. At the beginning of 2016 the terms of trade were under 100 index points showing that their imports were more expensive their imports. Since the beginning of 2016, the terms of trade have improved from 95 index points to almost 110 index points. …show more content…
Brazil hit its highest marks in late 2015 after experiencing a trade deficit between 2013 and 2014. The reason for the large surplus was the fact that Brazil was in a recession and the Real was weaker due to a contraction of GDP by 3.8% causing pressure for their central bank to print money. Since the Real lost value it boosted exports because their trade partners could get their goods for a lower price now. Increased demand for their cheaper goods led to Brazil’s increasing trade surplus. Also, the recession caused imports to decline due to lower domestic demand for imports because people were hurt financially by the recession. …show more content…
The years that inflation was closest to the target rate correlates to the country 's growth in GDP as well as other factors discussed earlier in this paper. Brazil’s target rate has been 4.5% since 2005 due to their high rates of growth. Many countries look to keep inflation around 2% but Brazil can afford to target their inflation at a higher rate. In order to keep inflation steady, Brazil manipulates their Selic rate, which is similar to the USA’s federal funds rate. The selic rate then determines interest rates for their country. Currently, Brazil has been in an ongoing recession since the beginning of 2015. Since the rise of inflation outside of the range in 2015, Brazil’s central bank rose the Selic rate to 14% and continues to keep it around that number in order to control inflation. Brazil is so focused on inflation that their central bank’s governor had this to say, “Central Bank governor Alexandre Tombini has been given a mandate in his second term to fight inflation at all costs. If that means interest rates at 14%, then so be it” (Rapoza 2). Clearly, inflation is the most important factor Brazil considers when determining what economic decisions to make. When inflation is on the rise, historically the central bank of Brazil raises interest rates in order to control inflation. Due to this policy, Interest rates in Brazil have generally been higher than the