Base interest rate up for seventh straight time
The Central Bank (BC) has raised the base interest rate for the seventh consecutive time. The Monetary Policy Committee (COPOM) unanimously decided to increase the official interest rate of Brazil's economy (SELIC) by 0.5 percentage points, to a total 14.25% per annum. At the previous COPOM meeting in June, the rate had also been incremented by 0.5 percentage points.
The increase puts the SELIC rate back at the same level it was in October 2006. The SELIC rate provides a benchmark for other interest rates and is the main tool used by the Central Bank to offset inflationary pressures.
In a statement, the Committee indicated that the basic interest rate should remain stable going forward. “The committee understands that maintaining the benchmark interest rate at this level for sufficiently long is a required measure to force inflation toward the target at the end of 2016,” the text read.
The National Monetary Council set a 4.5% official inflation target plus or minus 2 percentage points, within a maximum 6.5%. But when the government announced it had revised down the fiscal effort target last week, it estimated that the National Consumer Price Index (IPCA, the official inflation gauge) would close out 2015 at 9%.
A hike in regulated prices (e.g. energy and fuel) has created inflationary pressures this year. While it helps keep prices down, raising the SELIC rate can have adverse effects on the economy in a year of recession, amid falling production and consumption levels. In the current scenario, economic analysts are expecting Brazil's GDP to shrink 1.76% this year, whereas the Ministry of Planning projects 1.5%.
Translated by Mayra Borges
Fonte: Base interest rate up for seventh straight time
