Brazil's monetary policy decision: the story continues

Guillermo Parra-Bernal has answered me:

1. ''The experience of Brazil during the 2002 crisis is valid for the time being. When Brazil had this speculative attack ahead of the 2002 election (you probably remember that the currency dropped 50 percent in three months) the issue of trade financing and credit problems couldn´t be dealt with properly becasue international reserves were falling dramatically and the economy was undergoing a hike in inflation.´´
2. ''The bank raised the Selic by 300 bps on Oct. 14 (forgive if I am wrong, using my memory here) and kept borrowing costs high for a few months until price pressures subsided. Trade lines remained shuttered for as many as seven months, until markets realised the Lula administration was willing to honour the national debt. The situation here is the opposite, except for the credit crunch. Inflation is down dramatically -- and it will keep falling, -- and the government is quite concerned with jobs and activity in certain key industries (commodities, foods, mining and energy.) The country has plenty of reserves at this moment, and Brazil didn´t suffer the currency tumble that other EM nations (especially EE countries) did. Reserves are at similar levels to those before the crisis!!!´´
3. ''Having said that, the same way Arminio Fraga´s BCB overreacted by raising the Selic by 300 bps in an extraordinary meeting in a mid-October afternoon, Henrique Meirelles´s BCB will be a bit more measured, to show market participants his board is both agressive and prudent. People in the markets expect a half-point cut, but at this juncture I think that 75 bps is the most likely size. It´s a balanced cut (big for Brazilian standards, although small if you see the gravity of the crisis that is coming.)

I am mulling his arguments. Stay tuned.