Brazilian Central Bank brings a “hawkish stop” to monetary tightening

The Brazilian Central Bank on Wednesday interrupted its monetary tightening process and kept the country’s Selic benchmark interest rate at 13.75 percent. It was the first in 13 policy meetings that the bank’s Monetary Policy Committee opted against a rate bump. 

Two of the committee’s nine members voted for a 0.25-point increase, which was the direction some market analysts expected, given that inflation continues at high levels and widespread despite a recent easing in fuel prices. Still, the decision did not catch markets off-guard. Rather, the Central Bank’s comments on the future stood out as more significant than its decision on interest rates. 

The no-hike decision is not a policy U-turn but rather a “hawkish stop” to the tightening cycle, as some analysts called it. “Several underlying inflation measures are above intervals compatible with inflation targets,” the committee noted, adding that it “will remain vigilant in evaluating if keeping benchmark interest rates at current levels for a prolonged period will be able to ensure inflation will converge toward targets.”

“Interest rates have already gone up a lot, so it makes more of a difference now to hold on to that for longer — rather than going up further,” Luciano Sobral, chief economist at investment management firm Neo Investimentos, tells The Brazilian Report.

As we noted back in June, one...