Base interest rate increased to 10.75% p.a.
The Monetary Policy Committee (COPOM) of Brazil's Central Bank directors has adjusted the base interest rate (known as SELIC rate) by 0.25 percentage points to 10.75% per annum.
Despite the upward adjustment, the increment was smaller than seen in recent times, when the SELIC had been consistently adjusted by 0.5 percentage points. The current upward trend began in April 2013 as an attempt to contain inflationary pressures following two years of base rate stability.
The SELIC rate is the Central Banks' primary instrument to keep the official inflation gauged by the Broad Consumer Price Index (IPCA) within the target range, set by the economics panel at 4.5% per annum (plus or minus 2 percentage points).
The Brazilian Geography and Statistics Institute (IBGE) reported that annualized IPCA was at 5.59% by January. The annualized rate slowed down after hitting a peak 6.7% in June, well above the target ceiling.
On the other hand, an increase in the SELIC rate will cool off the economy, which had grown 2.4% by Q3 in 2013 and is still operating on government fixes like tax exemptions and cheap credit.
The interest 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. Adjustments are designed to contain excessive demand by making credit more expensive, in order to control inflationary pressures. When the base rate is reduced, credit becomes cheaper, which boosts production and consumption, but inflation control loosens.
Translated by Mayra Borges
Fonte: Base interest rate increased to 10.75% p.a.
