Effect of Central Bank Interest Rates on Economic Growth in Brazil

Purpose: The study aimed to the effect of central bank interest rates on economic growth in Brazil Methodology: This study adopted a desk methodology. A desk study research design is commonly known as secondary data collection. This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research. Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries. Findings: The study on the effect of Central Bank interest rates on economic growth in Brazil reveals that interest rate changes have a significant impact on economic performance, with rate hikes slowing down growth by reducing investment and consumption. However, the study also finds that the transmission mechanism is not immediate and is influenced by Brazil’s unique financial structure, including credit market segmentation and high levels of informality in the economy. While higher interest rates effectively control inflation, they can adversely affect growth, particularly in credit-sensitive sectors. The study emphasizes the need for complementary policies, such as structural reforms or fiscal measures, to mitigate these negative growth effects while still achieving inflation control. Unique contribution to theory, practice and policy: The study on Central Bank interest rates and economic growth in Brazil contributes to theory by adapting macroeconomic models to Brazil’s unique financial structure. It provides practical insights for policymakers and businesses on the real-world effects of interest rate changes on growth. The research highlights the need for complementary policies to balance inflation control with economic growth. It also offers recommendations for improving monetary policy effectiveness in emerging markets like Brazil. Ultimately, the study aids in designing more nuanced policies that promote both stability and long-term growth.