Central Bank raises benchmark interest rate to 6.25% a year

Following an increase in inflation in foodstuffs, fuels, and energy, Brazil’s Central Bank further tightened up its monetary policy. Its Monetary Policy Committee unanimously decided to raise the Selic rate—the economy’s benchmark interest rate—from 5.25 to 6.25 percent a year.

The rate is at its highest since July 2019, when it reached 6.5 percent a year. This was the fifth consecutive adjustment made to the Selic.

The Selic rate is used in negotiations of bonds under the Special Clearance and Escrow System—Selic in the original Portuguese acronym—and serves as a gauge for other interest rates in the economy. With the decision made today (Sep. 22), the bank continues the streak of hikes in the interest rate, the main tool to curb the official inflation, as measured by the National Broad Consumer Price Index, or IPCA.

Inflation

The IPCA closed out August at the highest level for the month since 2000, with an accumulated 9.68 percent for the 12-month period, pressed by the dollar as well as hikes in fuel and electric energy prices.

The amount is above the target set for the inflation by the National Monetary Council. For 2021, the target stands at 3.75 percent, with a tolerance margin of 1.5 percentage points. The IPCA, therefore, must not go above 5.25 percent this year or sink below 2.25 percent.