- When Real exchange fluctuates, and the rate impairs on the economic growth, fluctuations will stem from volatile oil prices, thus damaging the non- oil sector and the capital sector.
- This will see the economy in Brazil to fluctuate leading to decreases in per capita income.
- Generally speaking, "expansionary" and "contractionary" monetary policies are involved in changing money supply level in the country.
- Expansionary monetary policies are simply policies that expand or increase the money supply whiles the contractionary monetary policies contracts or decreases country’s supply currency.
- When talking about the expansionary monetary policies, they directly affect or impact the interest rate, whereas, it causes security prices to rise. For instance, the Federal Discount Rate determined as the interest rate and so, when lowered it essentially lowers the interest rates.
- On the other hand, when the reserve requirements lowered by the federation, it will end up causing banks to increase the amount of cash they invested. On the other hand, a “contractionary” monetary policy causes a decrease in the bond prices and increase in the interest rates.
- Further, the higher interest rates may end up leading to capital investment to fall. In addition to that, higher interest rates make domestic bonds to be more attractive, the demand for the domestic bonds rises and foreign bonds demand falls.
- The central bank of Brazil was aiming to stabilize its domestic currency the Plano into nominal terms after a number of plans to control its inflation failed (Leviathan, 31). The central bank of Brazil created Unidade Real de Valor (the real value unit) it served as the key step to implement the current currency, the real.
The appreciation currencies were a crucial deal in keeping the inflation level under control. Mainly, this deal ensured that the supply of cheap products that are imported in meeting domestic demand and force of domestic producers in selling lower price so as to maintain market shares.
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