Brazil has moved up the ranks of the world’s largest economies while achieving much more inclusive growth than in the past. Stable and predictable macroeconomic policies underpinned these gains. More recently, demand has been supported by macroeconomic stimulus, which has encouraged the expansion of the non-tradable sector, while manufacturing is suffering from declining competitiveness, and supply-side constraints appear to be biting. Inflation has remained high and has been allowed to drift momentarily above the tolerance band, and monetary policy credibility risked being undermined by political statements about the future trajectory of interest rates. The Central Bank started a tightening cycle in April of 2013. The fiscal rule has also been undermined, as the inflexible fiscal target – defined in terms of a primary surplus – has required unusual but legal measures to account for cyclical weakness and meet the target, reducing clarity. Fiscal challenges in the longer term are rising as the population will start to age fast in a decade from now and pension expenditures are already rising.