Key interest rate rises to 11.75% p.a.
The Central Bank has adjusted the key interest rate for the second consecutive time. In a meeting on Wednesday (Dec. 3), the Monetary Policy Committee (COPOM) of the bank's directors unanimously voted to increase the SELIC rate by 0.5 percentage points to 11.75% per year. At the previous meeting, in late October, the rate had been adjusted by 0.25 percentage points.
In a statement, COPOM admitted it made the decision as an attempt to curb inflation, but will keep a cautious approach to interest. “Considering the cumulative and lagged effects of monetary policy and other factors, the committee believes that any further monetary policy efforts should be moderate,” the text read.
The rate is at its highest level since mid-October 2011, when it was set at 12% per year. The Central Bank had been successively decreasing the SELIC rate since August that same year, until it reached a historical low of 7.25% in October 2012. From that point, it was kept stable until April 2013, when a new increment cycle began as an attempt to contain inflation.
The SELIC rate is used to keep the official inflation gauged by the Broad Consumer Price Index (IPCA) within the target established by the economics panel. It 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.
According to the National Monetary Council (CMN), the inflation mid-target is 4.5%, within a range of plus or minus 2 percentage points.
By October, the annualized IPCA had been 6.59% according to the Brazilian Institute of Geography and Statistics (IBGE).
Increasing the SELIC rate could adversely impact economic recovery while still under the effects of government stimuli including tax exemptions and cheap credit. 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: Key interest rate rises to 11.75% p.a.
