With the increase in inflation, the Central Bank made one more adjustment in basic interest rates to try to hold back the rise in prices. Unanimously, the Monetary Policy Committee (Copom) raised today (8) the basic interest rate, the Selic, from 7.75% to 9.25% per year. The decision was expected by financial market analysts .
This was the seventh consecutive readjustment in the Selic rate, after spending six years without an increase. From March to June, the Copom raised the rate by 0.75 percentage points in each meeting. In early August, the BC started to increase the Selic by 1 point at each meeting. At the last meeting, in October, the readjustment reached 1.5 percentage point .
Inflation
Selic is the main instrument of the Central Bank to keep official inflation under control, measured by the Broad National Consumer Price Index (IPCA). In October, the index was 1.25% , the highest for the month since 2002 (1.31%). In 12 months, the IPCA reached 10.67%.
For the financial market, the IPCA should reach 10.18% this year. Both the 12-month result and the forecast for the year are above the ceiling of the inflation target for the year. For 2021, the National Monetary Council (CMN) set the inflation target at 3.75%, with a tolerance margin of 1.5 percentage points. That is, the upper limit is 5.25% and the lower limit is 2.25%.
more expensive credit
Raising the Selic rate helps to control inflation. This is because higher interest rates make credit more expensive and discourage production and consumption. On the other hand, higher rates make it difficult for the economy to recover.
By reducing basic interest rates, the Copom makes credit cheaper and encourages production and consumption, but weakens the control of inflation. To cut the Selic, the monetary authority needs to be sure that prices are under control and are not at risk of rising.
The basic interest rate is used in the negotiation of government bonds in the Special System for Settlement and Custody (Selic) and serves as a reference for other interest rates in the economy. By readjusting it upwards, the Central Bank holds back the excess demand that puts pressure on prices, because higher interest rates make credit more expensive and stimulate savings.
Art / Brazil Agency
Matter amended at 10:17 am for correction in the second paragraph. The Selic rate rose 1.5 percentage points in october, not 1.25 percentage points as previously reported.
Text translated using artificial intelligence.
