Brazil Central Bank raises basic interest rate to 10.75% a year
Amid rising inflation on food, fuel and energy prices, Brazil Central Bank has tightened its monetary policy belts even further. Unanimously, the Monetary Policy Committee (Copom) has raised the Selic rate, the economy's basic interest rate, from 9.25 percent to 10.75 percent a year.
The rate hit two digits for the first time since July 2017, when it was also at 10.25 percent a year. This was the eighth consecutive increase in the Selic rate.
In a statement, Copom has indicated that it will continue to raise basic interest rates until inflation is under controll in the medium term. However, it informed that it shall reduce the pace of Selic rate hikes in the next meetings, because the economy is still feeling the impact of previous increases.
The basic interest rate is used in the negotiation of public bonds in the Special Clearance and Escrow System (Selic), and it serves as a reference for other interest rates in the Brazilian economy. By readjusting it upwards, the Central Bank holds back the excess of demand that puts pressure on prices, because higher interest rates make credit more expensive and encourage savings.
Inflation
Selic is the Central Bank's main instrument to keep official inflation under control, which is measured by the Broad National Consumer Price Index (IPCA). In 2021, the indicator closed at 10.06 percent, the highest level since 2015, pressured by the dollar, and the price increase of fuels and electricity.
The figure is above the ceiling of the inflation target, which was 5.25 percent last year. For 2022, the National Monetary Council (CMN) has set an inflation target of 3.5 percent, with a tolerance margin of 1.5 percentage points. The IPCA, therefore, cannot exceed 5 percent this year nor remain below 2 percent.
