Key interest rate goes up to 13.75% p.a.

For the sixth consecutive time, the Central Bank (BC) has raised the benchmark interest rate (SELIC). The Monetary Policy Committee (COPOM) unanimously decided to increase the SELIC rate by 0.5 percentage point to 13.75% per annum. The increment is the same as the latest rise in April.

The SELIC rate is the main tool used by the Central Bank to control the official inflation rate gauged by the National Consumer Price Index (IPCA). According to the Brazilian Institute of Geography and Statistics (IBGE), the cumulative IPCA for the 12 months ending in April was 8.17%, far exceeding the 4.5% target set by the government. Price increases in regulated prices such as electricity and fuel have been creating inflationary pressures this year.

While helping keep prices under control, increasing the SELIC rate has an adverse effect on an already receding economy, ailing with falling production and consumption levels.

The rate applies to public bond trading within the so-called Special Clearance and Escrow System (SELIC) and provides a benchmark for other interest rates in the economy. Increases are designed to contain excessive demand by making credit more expensive, in order to control inflationary pressures. When the benchmark rate is lowered, credit becomes cheaper, which boosts production and consumption, but inflation control loosens.

Translated by Mayra Borges