Central Bank raises interest rate for first time in six years

The Selic rate went from 2% to 2.75% a year, surprising analysts

Published in 18/03/2021 - 12:16 By Wellton Máximo - Brasília

Amid hikes in food prices spreading to other sectors, Brazil’s Central Bank raised the country’s benchmark interest rate for the first time in six years. The Monetary Policy Committee, or Copom, unanimously decided to increase the Selic from two to 2.75 percent a year. The move took financial analysts by surprise, who were expecting 2.5 percent.

The decision, made Wednesday (Mar. 17), lifts the Selic for the first time since 2015, when it had been brought up from 13.75 to 14.25 percent a year, which was held steady until October 2016, when the Copom once again reduced the benchmark interest until it reached 6.5 percent a year in March 2018. In July 2019, the Selic was cut again until it stood at a yearly two percent in August 2020, influenced by the economic slowdown brought about by the COVID-19 pandemic. This was the lowest level in this time series, initiated in 1986.


The Selic is the Central Bank’s main tool to curb the official inflation, as gauged by the National Broad Consumer Price Index, or IPCA. The indicator closed out February at 5.2 percent for the 12-month period, pressed by the dollar and the hike in food and fuel prices. The amount is near the ceiling of the inflation target.

For 2021, the National Monetary Council (CMN) set the inflation target at 3.75 percent, with a tolerance margin of 1.5 percentage points. The IPCA, therefore, must not exceed 5.25 percent this year, or go below 2.25 percent.


The benchmark interest rate is used in negotiations on public bonds under the Special Clearance and Escrow System—the Selic—and serves as a gauge for the other interest rates in the economy. By pulling it up, the Central Bank holds in check the excess of the demand that exerts pressure on prices, as higher interest makes credit more expensive and boosts saving.

In a statement, the Central Bank declared that the rise in the Selic rate makes it less likely for this year’s inflation target to be breached and helps preserving expectations for longer horizons. The strategy, the bank argued, is compatible with the plan to meet the target in 2022, despite the temporary strengthening in social distancing.

The Central Bank also said it plans to raise the interest in another 0.75 percentage points in the next Copom meeting, on May 4 and 5, should there not be a significant change in forecasts for the inflation or the balance of risks.

Translation: Fabrício Ferreira -  Edition: Aline Leal / Nira Foster

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