RIO DE JANEIRO, BRAZIL – The Central Bank (BC) said Tuesday that the key interest rate, the Selic, will remain in the “significantly contractionary” range for a more extended period than previously expected. The information was published in the minutes of the Copom (Monetary Policy Committee).
The Selic rose to 13.25% per annum on Wednesday (15). Interest rates are now at their highest level since January 2017, when they were at 13.75%. The Copom has indicated that it may raise the prime rate to as high as 13.75% per annum at its next meeting on August 2-3.
According to Infinity Asset, real interest rates in Brazil will be 8.16% over the next 12 months, excluding inflation. According to the company, Brazil ranks first worldwide for the highest rates.
Raising the Selic rate to a higher level and keeping it permanently are aimed at controlling inflation. Interest rates are also rising in other countries, such as the United States.
The Federal Reserve (USA) on Wednesday (15) raised the interest rate by 0.75 percentage points, the highest since November 1994.
In Brazil, the central bank has already said that the IPCA (National Consumer Price Index) will be above the target of 3.5% this year. It estimates that the index will rise to 8.8% in 2022.
Since the monetary policy has a lagged effect – i.e., the adjustments have a medium-term impact – the new increases in the Selic rate are likely to be felt more strongly in 2023. The monetary authority estimates inflation for the coming year at 4%, which is also above the target of 3.25%.
Suppose inflation is above 5% (the target) at the end of the year. In that case, the president of the central bank, Roberto Campos Neto, must issue a public letter explaining the reasons for non-compliance. According to the law that approved the autonomy of the Central Bank, the main task of the monetary authority is to ensure the purchasing power of the population.
Campos Neto already had to make statements in 2021, when inflation reached 10.06%. Last year, the target was 3.75%. The BC president justified this because oil and energy put pressure on the price index. Read the full text here.
The central bank said Tuesday (21) that it expects a sharper slowdown in global economic activity due to the withdrawal of monetary stimulus.