This paper looks at Brazil's unusually high interest rates. Brazil has the fourth-highest interest burden in the world on its federal debt (out of a total of 183 countries). The paper finds that this is not a result of known risk factors, but rather is due to unusually high interest rates set by the Central Bank -- Brazil's policy interest rates have also been among the highest in the world -- and to the market and political power of a highly concentrated banking sector. While Brazil's policy interest rate has recently been cut, the real policy interest rate (inflation adjusted) is actually higher than it has been at any time since December 2008.
The authors warn that unless Brazil corrects its monetary policy, it could contribute to another severe, long-term growth failure comparable to the experience of 1980–2003. During that time, per capita GDP growth averaged about 0.2 percent per year.
This report updates a version released in December 2016.