Despite fuel spike, Central Bank slows down pace of interest rate hike

Photo: Gabriel Cabral/Folhapress
Photo: Gabriel Cabral/Folhapress

Brazil’s Central Bank Monetary Policy Committee announced a 1-percentage-point increase to the Selic benchmark interest rate on Wednesday evening. With this latest hike, the rate rose from 10.75 percent per year to 11.75 percent.

The result came within the expectations of most market analysts, who forecasted a smaller increase for this month, after the committee itself signaled “a reduction in the adjustment pace of the basic interest rate as the most appropriate [decision].” 

According to 38 out of 44 economists consulted by a Bloomberg survey, the expected Selic increase was of 1 percentage point, while only two predicted the committee would maintain its pace of monetary tightening at 1.5 percentage points.

Brazil has undergone the world’s sharpest monetary tightening process, with benchmark interest rates up from 2 percent to 10.75 percent since March of last year. This measure has served as a mechanism to control inflation, which has been above the 10-percent mark for six consecutive months with little indication that it will drop significantly any time soon — especially after the recent major hike in fuel prices enacted by Brazilian oil and gas giant Petrobras.