Brazil’s central bank is in a quandary. The market fallout after this week’s 150bp rate hike suggests investors didn’t think it went far enough to quash concerns about fiscal risks and rising inflation, but tighter policy also risks derailing the economic recovery and making the public finances even more fragile. Elsewhere, Pemex’s poor Q3 results implies that Mexico’s state-owned oil giant will need more government support, which will probably be forthcoming but would come at the cost of a greater misallocation of resources and lower potential growth.
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