As expected by the markets, Brazil’s Central Bank raised its benchmark interest rate this evening by a full percentage point. With the increase, the Selic rate rose from 5.25 percent to 6.25 percent — and the bank suggested a new 1-point bump is on the way.
For year-end interest rate prospects, most banks estimate Selic to reach between 7.5 and 8.5 percent, though some experts shoot even higher, expecting interest rates to be closer to double digits by the beginning of next year.
Until last week, economists had predicted a rate increase of between 1.25 and 1.5 percent, hoping for a more accelerated monetary tightening process that would help tame inflation. In August, consumer prices measured by the IPCA index were the highest for the month on record, with a 0.87-percent increase.
However, less than a week ago, Central Bank Chairman Roberto Campos Neto signaled the institution would not change its “flight plan” by increasing the Selic at each new jump in inflation.
According to investment bank BTG Pactual, the Central Bank was in a difficult situation as, by adopting a more dovish posture, inflation projections would likely worsen. Meanwhile, being more hawkish would put 2022 GDP growth prospects in check.