Brazil Central Bank raises SELIC benchmark interest rate to double digits
RIO DE JANEIRO, BRAZIL – The 8th consecutive increase in the SELIC, in line with forecasts, comes as Latin America’s biggest economy struggles through a recession and persistently high inflation, according to the bank’s monetary policy committee (COPOM).
COPOM, which made the decision unanimously, hinted it would soon slow the tightening cycle, saying it “currently foresees a slowdown in the pace (of rate cuts) as the most adequate policy.”
Brazil has responded to pandemic-driven inflation with one of the most aggressive tightening cycles in the world, rapidly raising the benchmark interest rate from an all-time low of 2% in March 2021.
The last time the SELIC rate reached double digits was in May 2017.
Brazil’s inflation rate came in at 10.06% in 2021, largely exceeding the Central Bank’s target — currently 3.5%. But the hawkish monetary policy is putting the brakes on economic growth.
The economy fell into recession last year, contracting 0.4% in the second quarter and 0.1% in the third. Analysts are currently forecasting economic growth of only 0.3% for this year.
ELECTION YEAR
The weak economy has emerged as a major headache for President Jair Bolsonaro, up for reelection in October.
The election year and pandemic-related uncertainties are impacting Brazil’s economy, but there are signs of improvement.
The monthly inflation rate slowed at the end of the year, from 0.95% in November to 0.73% in December.
And industrial output came in at a higher-than-expected 3.9% growth for 2021, according to figures released Wednesday — although it remains 0.9% below its pre-pandemic level.
Central Bank president Roberto Campos Neto recently said he expected the rate-tightening cycle to be “reaching its end.”
The Bank’s next meeting is set for mid-March. Analysts forecast the last rate hike will come in May, bringing the SELIC to around 12%.
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