Central Bank raises interest rates to a new five-year high

exporters Central Bank interest rates high
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As expected, Brazil’s Central Bank Monetary Policy Committee raised the country’s benchmark interest rate by one percentage point on Wednesday night. It was the tenth-straight bump, taking the Selic rate from 2 percent in March 2021 to 12.75 percent now — the world’s steepest monetary tightening process.

According to the Focus Report, a weekly survey of top-rated investment firms carried out by the Central Bank, markets expect the Selic rate to reach 13.25 percent by year-end.

Higher interest rates are used to cool off the economy and hold inflation down. But despite the consecutive hikes to the Selic rate, Brazilian consumer prices have climbed 11.3 percent over the past 12 months — and show no sign of slowing down. Mid-month consumer price index IPCA-15, which serves as a predictor for the official rate, grew by 1.73 percent in April. 

In the 12-month period, the IPCA-15 has broken the 12-percent mark.

“Given 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,” said the Monetary Policy Committee.

For its next meeting, the Central Bank foresees as “likely” a new bump to the Selic rate, with an adjustment of lower magnitude.