Brazil’s central bank hiked its benchmark interest rate for the 12th consecutive day on Wednesday, citing an “adverse and volatile” global economy and warning that its tightening cycle, one of the world’s most aggressive, may not be over yet.
The bank’s monetary policy committee raised the Selic benchmark interest rate by half a percentage point to 13.75 percent, in line with market expectations.
And although many analysts had forecast Brazil’s tightening rate hikes would end there, the bank said stubbornly high inflation meant there could be more in store.
“The committee will consider the need for a minor residual adjustment at its next meeting on September 20-21,” it said in a statement.
“The external environment remains unfavorable and volatile, with major downward revisions to the outlook for global economic growth in an inflationary environment that is still under pressure,” he added.
“The uncertainty of the current economic situation, both domestically and globally…requires special caution.”
The decision was made unanimously by the nine members of the committee, it said.
The key interest rate is now at its highest level since January 2017.
– End near? –
Brazil – Latin America’s largest economy – has been plagued by a history of hyperinflation, responding quickly and aggressively to the global price surges sparked by the coronavirus pandemic and then Russia’s invasion of Ukraine.
Since March 2021, the central bank has rapidly raised the Selic from an all-time low of 2 percent, which it introduced to boost the pandemic-hit economy.
This included three whopping 1.5 percentage point increases from October 2021 to February 2022, followed by two one percentage point increases.
Now Brazil is pondering when to end its tightening cycle, while policymakers in other major economies ramp up their monetary tightening.
The US Federal Reserve raised interest rates by 0.75 points last week, the fourth straight hike. The week before, the European Central Bank had raised its key interest rate by 0.5 points, the first increase since 2011.
Annual inflation remains high in Brazil at 11.89 percent in June – well above the central bank’s target of 3.5 percent.
But analysts polled by the central bank predict that the inflation rate will fall to 7.15 percent by the end of the year.
The same poll found that analysts think the central bank’s tightening cycle is almost over, giving an average forecast of 13.75 percent for the year-end Selic rate.
– Economic world criticized –
Even as bank policymakers try to stem runaway prices by raising interest rates, they’re wary of pushing the economy into recession by slamming on the brakes too hard.
The central bank faces calls to ease its rate hikes.
“Since December, real interest rates have been at levels that are constraining economic activity,” Marcelo Azevedo, chief economic analyst at Brazil’s powerful industry confederation, the CNI, said in a recent statement.
The CNI called Wednesday’s hike “wrong”.
A 0.4 percent monthly decline in Brazilian industrial production in June and other “softer surveys” over the past month suggest the economy is losing steam, said William Jackson, chief emerging market economist at consultancy Capital Economics.
Analysts polled by the central bank are forecasting that Brazil’s GDP growth for the year will be 1.97 percent, after 4.6 percent growth last year and a 3.9 percent contraction in pandemic-hit 2020.
Brazil’s economy grew 1 percent in the first quarter, but experts warn the second half of the year looks bleaker.
With soaring food and fuel prices hurting Brazilian families, the ailing economy has become a major drag for President Jair Bolsonaro as he campaigns for re-election this October.
According to the latest survey by the Datafolha Institute, the far-right incumbent is 47 percent to 29 percent behind left-wing ex-president Luiz Inácio Lula da Silva.
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