Impact of interest rate hikes in the US not so worrying for Brazil, says economist

The increase in interest rates by central banks in developed countries, such as the United States and Europe, accelerates the outflow of financial capital from emerging countries, such as Brazil.

However, in the opinion of former World Bank vice president Otaviano Canuto, the Brazilian situation is less worrying than that of other nations that have more fragile economies.

In an interview with CNN Radio he explained that Brazil’s economy “has its problems to grow and difficulties”, but that the impact of rising interest rates – used as a subterfuge to contain inflation – is not a “pre-disaster situation, as it has been in the past. ”

This is because, according to Canuto, today, Brazil has “a balance of commercial transactions and services with the world in a better position than in 2013, for example.”

“In recent years, we have seen an increase in reserves in Brazil, in addition to having a smaller dependence on public funding in relation to foreign investors.”

Another factor is that Brazil “had already been raising interest rates in response to the inflationary spike.”

Given the circumstances, Otaviano Canuto sees that the dollar will follow the trend of rising against the real, and admits that the situation is still challenging, but reinforces that “it will not lead to a crisis.”

The economist also stressed that investors in emerging countries face greater risk than in advanced economies and must have a return differential “so that they feel comfortable bringing resources here.”

This is the movement that leads to capital flight, because, as interest rates rise in developed countries, “the equation of combining return with greater risk is reversed”, favoring richer economies.

*Produced by Alessandra Ferreira