Key interest rate hits six-year peak
Central Bank
For the fifth consecutive time, the Central Bank (BC) has raised the key interest rate (SELIC). By unanimous vote Wednesday (Apr. 29), the Monetary Policy Committee (COPOM) increased the SELIC rate by 0.5 percentage points to 13.25% per annum, with no foresight of upward or downward trends.
In a statement, the BC said the decision was based on “analysis of the macroeconomic scenario and the outlook for inflation,” including current price conditions.
With the increase, SELIC reached the highest level since January 2009, when it hit 13.75% per annum. The rate is the BC's main instrument to keep in check the official inflation. The National Monetary Council set a 4.5% official inflation target, plus or minus 2 percentage points (6.5% maximum). However, the Central Bank itself acknowledged in its latest inflation report that the rate should close out 2015 at 7.9%.
According to the Brazilian Institute of Geography and Statistics (IBGE), the cumulative Broad Consumer Price Index (the official inflation gauge) was 8.13% in the 12 months ending in March. And according to the Focus report, a weekly survey of financial institutions released by the Central Bank, it will close out 2015 at 8.25%. Higher managed prices including energy and fuel have been creating inflationary pressures this year.
Because the SELIC rate provides a benchmark for other interest rates in the economy, the Central Bank raises it as an attempt to curb inflation by inhibiting demand for consumer goods – higher interest rates make credit more expensive and encourage savings. But while it helps keep prices under control, raising the SELIC rate can ultimately be adverse for the economy in a year of downturn, with declines in production and consumption. According to the Focus report, the economic analysts are projecting a 1.1% GDP reduction in 2015.
Translated by Mayra Borges
*This story was amended at 6:36pm on April 30, 2015 in order to correct inaccurate information in the translation.
Fonte: Key interest rate hits six-year peak
