Brazil raises interest rate to 3.5% to curb inflation

RIO DE JANEIRO, BRAZIL – Brazil’s Central Bank (BC) on Wednesday raised the basic interest rate by 0.75 percentage points to 3.5% per annum, the second consecutive rate hike aimed at containing rising inflation.

The Central Bank’s Monetary Policy Committee (Copom) unanimously raised the so-called Selic rate from 2.75% to 3.5%, a decision that was expected by the market due to growing inflationary pressure.

Brazil raised rates in March for the first time in six years, from their minimum of 2 % to 2.75 %, despite the economic crisis and the uncertainty generated by the coronavirus pandemic.

The interest rate hike is aimed at slowing the rise in the price index. In the last 12 months, inflation stood at 6.10%, above the ceiling of the target set by the Government for this year, which is 3.75% with a tolerance margin of 1.5 percentage points.

The CB recalled in its report that, except oil, international prices of raw materials continue to rise, with an impact on food and industrial goods price projections.

“The Committee maintains the diagnosis that the current shocks are temporary but remains attentive to their evolution,” the statement said.

Looking ahead to the next meeting, the Committee forecast the “continuation of the process of partial normalization of stimulus with another adjustment of the same magnitude.”

According to the latest bulletin released this week by the Central Bank, the market expects the interest rate to end the year at 5.50% and at 6.25% in 2022, which gathers the opinion of a hundred experts.

The Selic reached its annual peak in July 2015, when it reached 14.25 % and remained at that level until mid-2016, at which time the Central Bank began a sustained decline to the historic low of 2 %.

With the gradual increase, the Central Bank seeks to curb inflation, but it should also prevent the rate hike from interfering with its economic recovery after the sharp crash in 2020.

According to economists consulted by the Central Bank, Brazil’s GDP fell last year by 4.1%, the worst annual result since 1996, and for this 2021, it will grow by 3.14%.

“In relation to the Brazilian economic activity, recent indicators show a more positive evolution than expected, despite the intensity of the second wave of the pandemic being greater than expected,” the issuer highlighted in the statement.

The CB specified that the uncertainty about the economy’s growth remains above the usual, “but the few should be returning to normal”.

This article was produced by The Rio Times’ automated newsroom system. How we use AI · Report an error