BCB still in a bind

Last night’s decision by the Brazilian Central Bank (BCB) to raise interest rates by a smaller-thanexpected 25bps illustrates the bind that policymakers currently find themselves in: how do you tackle rising inflation without stoking speculative capital inflows? Monetary policy has been left hamstrung by conditions in the global economy and the answer now lies in targeted capital controls and much tighter fiscal policy. The path ahead is looking increasingly bumpy.