Brazil’s Central Bank sends ambiguous message on interest rate hikes

As expected, the Brazilian Central Bank’s Monetary Policy Committee on Wednesday evening raised the Selic benchmark interest rate by a half percentage point to 13.75 percent a year. The committee has announced hikes in each of its last 12 meetings, which are held 45 days apart.

After enacting one of the world’s steepest monetary tightening processes since the beginning of the pandemic, the bank signaled that it will start easing its policy regarding interest rates.

But while further hikes should be of lower magnitudes, the bank is not ready to completely dial back its policy. “Given [the committee’s] inflation projections and the risk of a de-anchoring of long-term expectations, it is appropriate to continue advancing in the process of monetary tightening significantly into even more restrictive territory,” it wrote in a statement. 

“The committee emphasizes that it will persist in its strategy until the disinflation process consolidates and anchors expectations around its targets. It will evaluate the need for a residual adjustment, of a lower magnitude, at its next meeting.”

The statements send mixed signals to markets, which expect no further hikes this year. The median year-end forecast for the benchmark interest rate has been settled at 13.75 percent for the past six weeks, per the Central...