Economy

US monetary policy will continue to push exchange rates from emerging countries such as Brazil

That's what the former Federal Reserve director Randall Kroszner said in an interview for the Brazilian newspaper Valor Econômico

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  • He believes that it is not until the end of this year that the US benchmark interest rate should be reduced;
  • And only if inflation remains below the target rate of 2% per year.

In an interview with Bruno Villas Bôas, staff reporter of the Brazilian newspaper Valor Econômico, the economist and former Federal Reserve (Fed) director Randall Kroszner said currencies from emerging countries in the process of lowering benchmarking interest rates, such as Brazil, will continue pressured by US monetary policy in 2020.

He believes that it is not until the end of this year that the US benchmark interest rate should be reduced, and only if inflation remains below the target rate of 2% per year. He said that Fed “wants to avoid the situation in Japan, where inflation and inflation expectations fell well below the 2% target and the (chosen) monetary policy has taken too long to respond.”

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Kroszner explained that cutting interest rates in the United States early last year was critical to sustaining the country’s economic expansion. “Preventing recession and maintaining solid growth have a positive impact on emerging markets such as Brazil, as it helps maintain demand for exports,” said the economist.

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At the same time, lower US interest rates help reduce some of the dollar’s appreciation pressure on emerging currencies. About Brazil, Kroszner said that the country needs to follow the reform agenda that began in 2019. “If Brazil continues on the path of reform, confidence will return and the economy will recover,” he told Valor.