% annual growth rate:
|Eight years to 2018||11.36%||7.35%|
Sources: M3 from OECD database and nominal GDP from IMF database, as at May 2019.
The medium-term relationship between money and nominal GDP growth in Brazil, 1971-2018
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 increasing 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.