Brazil’s Central Bank raises interest rate to 14.25% per year
Amid rising food and energy prices and global economic uncertainties, Brazil’s Central Bank raised interest rates again. The Monetary Policy Committee (Copom) unanimously increased the Selic rate—the economy’s basic interest rate—by 1 percentage point to 14.25 percent per year.
In a statement, Copom noted that external uncertainties, mainly driven by the country’s trade policy, raise doubts about the stance of the Federal Reserve (Fed—the US Central Bank). With regard to Brazil, the text states that the Brazilian economy is heating up, despite signs of moderation in growth.
Copom reported that both overall and core inflation, driven by volatile prices like food and energy, are still climbing. It warned of the risk of persistent inflation in services and pledged to monitor the government’s economic policy closely.
“The committee remains attentive to how fiscal policy developments affect monetary policy and financial assets. Perceptions of the fiscal regime and debt sustainability continue to significantly influence asset prices and expectations,” the statement said.
Future Selic
For the upcoming meetings, Copom indicated it will raise the Selic rate “to a lesser extent” at the May meeting, without providing further guidance on future decisions.
“Beyond the next meeting [starting in June], the Committee emphasized that the overall magnitude of the monetary tightening cycle will be determined by a firm commitment to bringing inflation to the target and will depend on the evolution of inflation dynamics,” it said.
This marks the fifth consecutive Selic rate hike, bringing the rate to its highest level since October 2016, when it stood at 14.25 percent per year. The increase consolidates the ongoing cycle of monetary tightening.
The basic interest rate is used in government bond trading on the Special Settlement and Custody System (Selic) and serves as a benchmark for other interest rates in the economy.
Inflation
The Selic is the Central Bank’s primary tool for controlling official inflation, as measured by the Broad National Consumer Price Index (IPCA). In February, the IPCA, the official inflation measure, reached 1.48 percent.
As a result, the indicator has accumulated a 12-month increase of 4.87 percent, exceeding last year’s target ceiling.
Under the new continuous target system, effective this month, the Central Bank’s inflation target, set by the National Monetary Council, is 3 percent, with a tolerance range of ±1.5 percentage points. This means the target’s lower limit is 1.5 percent and the upper limit is 4.5 percent.
In the continuous target model, the target is calculated monthly based on inflation accumulated over the past 12 months.
