Brazil’s Central Bank is the world’s most hawkish. So why do inflation expectations keep rising?

Trying to hold down consumer prices, the Central Bank has been furiously increasing benchmark interest rates, in a trend unlikely to end any time soon. But pursuing unrealistic inflation goals could spell disaster

inflation central bank
Food prices have skyrocketed in 2021. Photo: Aloisio Mauricio /Fotoarena/Folhapress

By the end of this year, Brazil’s Central Bank will have jacked up the Selic benchmark interest rate by at least 7 percentage points — more than practically any of its peers around the world. Even considering that the Selic started from a record-low 2 percent a year baseline, this tightening process is huge — and is widely expected to continue into early 2022. 

According to market expectations, Brazil will end 2022 with short-term real interest rates (i.e. expected policy rate minus expected inflation) north of 7 percent, considerably more than any other emerging economy. Russia comes in second,...

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