An overview of the effects of monetary policy in Brazil on GDP and inflation, from 1971 to the present day.

% annual growth rate:

  M3 Nominal GDP
1971-2022 231.15% 242.09%
1971-1980 52.51% 52.82%
1981-1990 455.16% 581.42%
1991-2000 662.36% 602.10%
2001-2010 18.14% 12.70%
2011-2020 11.24% 7.00%

Sources: M3 from OECD database and nominal GDP from IMF database, as at September 2023.

The medium-term relationship between money and nominal GDP growth in Brazil, 1971-2022

Five-year moving averages of annual % changes, with 1973 being the start of the first five-year period

Comment on monetary trends in Brazil

Brazil's monetary experience during the last four decades is a classic example of how harmful uncontrolled monetary growth can be for the overall economy. Rapid economic growth in the early 1970s was driven by increased public spending and growing public indebtedness. This pattern of economic growth had become unsustainable by the end of the 1970s and early 1980s and the government increasingly resorted to monetising the deficit in an effort to sustain economic growth. Consequently, annual rates of growth of broad money escalated from 50% in 1978 to a ten-year peak of 309.4% in 1985, eventually resulting in the default on the external debt in 1987. With such rates of growth of money, not surprisingly the economy suffered from very high inflation rates in the 1980s and even hyperinflation in 1989, 1990 and 1992.

In 1994 a new economic plan was introduced in an effort to stabilise the value of the new currency (the Real) and thus to be able to attract foreign investment again. Annual broad money growth was cut from 1,214.2% in 1994 to 45% in 1995, and inflation was kept in check for the first time in decades. A few years later, the central bank was given an inflation target and the country has experienced much more stable rates of growth of broad money since the early 2000s and thus more moderate rates of inflation with an average rate of growth of CPI prices close to 6%. Since 1994, this new monetary framework allowed the economy to experience a period of continuous growth which lasted two decades, only coming to an end in 2014.

Brazil suffered particularly badly from the coronavirus pandemic in 2020 and 2021. The government launched a fiscal support package in response while the central bank loosened monetary policy.  From mid-2021 onwards, inflation unsurprisingly began to rise sharply and the central bank responded aggressively, raising interest rates from 2% to 13.75%. Broad money growth had slowed by early 2022, but inflation  remained above 10% for several more months.