Up against inflation, Brazil’s Central Bank to bring back the pain

In a decision that surprised no one, the Brazilian Central Bank maintained the country’s Selic benchmark interest rate at 13.75 percent in its last policy meeting before the country’s presidential runoff election. 

The monetary authority reaffirmed its long-term battle against inflation, which closed 2021 in the double digits and is set to exceed the government’s target this year, according to the Central Bank itself. Prices have recently receded, but mainly thanks to government intervention to hold fuel prices down.

Yesterday, however, the IPCA-15 mid-month inflation index raised red flags after snapping a two-month deflationary streak — with food prices rising by 0.21 percent.

The committee adopted an even harsher tone now than in its September meeting, when it went for what markets saw as a “hawkish stop to rising interests,” stating this time that it “will not hesitate to resume the tightening cycle if the disinflationary process does not proceed as expected.”

In a statement, the committee says it judges that this decision “reflects the uncertainty around its scenarios for prospective inflation, an even higher-than-usual variance in the balance of risks, and is consistent with the strategy for inflation convergence to a level around its target.” 

Still, it added that this decision “implies smoothing economic fluctuations and fostering full employment.”

The committee’s words confirm what we noted back in June, that one should expect double-digit interest rates for months to come. More conservative central bankers — as is the case of incumbent chairman Roberto Campos Neto — will wait for...