Brazil’s central bank raises interest rate by 100 basis points for the second time in a row

RIO DE JANEIRO, BRAZIL – Brazil’s central bank raised its benchmark interest rate by a whole percentage point for the second straight day, extending one of the world’s most aggressive tightening cycles since the pandemic.

As expected by all economists surveyed by Bloomberg, the bank’s board raised the Selic rate to 12.75% on Wednesday. So far, policymakers have increased borrowing costs by 10.75 percentage points since March 2021.

Policymakers, led by Roberto Campos Neto, have grappled with persistent shocks that pushed consumer prices up more than 12 percent in early April.

Fuel prices have risen following Russia’s invasion of Ukraine, and civil servants are demanding higher salaries. Economists, who believe Brazil needs even more aggressive tightening, have continued to raise their inflation forecasts above target.

“Raising the policy rate to 12.75% is not enough to bring inflation back to the target level,” Tatiana Noguera, an economist at local asset manager XP Inc. said before the decision. “Inflation this year will continue to push up prices in 2023.”

GLOBAL TREND

The Brazilian central bank’s decision came just hours after the U.S. Federal Reserve raised interest rates by half a percentage point, the most significant increase since 2000.

In Latin America, Chile is expected to raise borrowing costs tomorrow (Thursday) as annual inflation rapidly approaches double digits. Colombia increased its interest rate to a five-year high last week.

According to a central bank survey of economists released Monday, Brazilian consumer prices will rise 7.89% this year and 4.1% next year. Policymakers target inflation of 3.5% and 3.25% in 2022 and 2023, respectively.