Central Bank: Brazil interest to rise again in May

The Monetary Policy Committee (COPOM) of Brazil’s Central Bank stated that the conflict between Russia and Ukraine and the supply shock in commodity prices are aggravating uncertainties surrounding the global economic scenario, with “potential to exacerbate inflationary pressures.” In the minutes to last week’s meeting released today (Mar. 22), the committee reported it will raise Brazil’s benchmark interest rate, the Selic, by one percentage point in the coming meeting, in early May.

Last Wednesday (16), Copom unanimously decided to increase the Selic by one percentage point to 11.75 percent a year. To the committee’s judgment, the conflict between Russia and Ukraine has led to a “new momentum” in global production chains, with sanctions imposed on Russia possibly causing “more prolonged inflationary pressures” in the production of goods.

The committee further noted that consumer inflation remains elevated, “with increases more persistent than anticipated, across several components.” The different indicators show that inflation should remain “above the range compatible with meeting the target”— 3.5 percent, with a variation of 1.5 percentage points.

“The rise in industrial goods prices has not eased up and should persist in the short term, while inflation under services has sped up even further. The recent readings came higher than expected, and the surprise came both for the more volatile components and those more closely linked to underlying inflation,” says Copom.

The committee acknowledged, however, that the scenario is “poses a challenge to bringing inflation close to its targets,” and said it will be ready to adjust the scope of the monetary tightening cycle if the scenario deteriorates.