Has Brazil succumbed to “fiscal dominance”?

The decision by Brazil’s central bank not to raise interest rates last week has sparked a debate over whether Latin America’s largest economy has succumbed to “fiscal dominance” – whereby fiscal considerations become the overriding driver of monetary policy. We’re sceptical that this is currently the case. But in the absence of Congressional support for austerity, it is likely that the government will start to seek increasingly unorthodox ways to contain the public debt ratio.