THE INFLUENCE OF BRAZILIAN MONETARY POLICY ON THE EXCHANGE RATE

Abstract

Monetary policy plays a central role in directing the Brazilian economy, especially after the adoption of the inflation-targeting regime in 1999, when the Central Bank began to use the Selic rate as the main instrument for controlling inflation. However, decisions regarding the basic interest rate affect not only the price level but also exchange rate behavior, an essential element in an open economy integrated into the international market. This article analyzes the influence of monetary policy, particularly changes in the Selic rate, on the exchange rate in Brazil. To this end, the theoretical foundations that support this relationship are discussed, along with recent episodes of the Brazilian economy that highlight the effects of monetary policy on the appreciation and depreciation of the Real. The research shows that although raising interest rates tends to attract foreign capital and appreciate the national currency, factors such as fiscal risk, Global volatility and international crises also have a decisive influence on the exchange rate. It is concluded that the effectiveness of Brazilian monetary policy depends not only on the internal management of the interest rate but also on fiscal credibility and the stability of the macroeconomic environment.