Central Bank raises Brazil’s benchmark interest rate to 15% per year
Despite the recent drop in inflation, uncertainties around the Brazilian economy have led the Central Bank to raise the country’s benchmark interest rate. Its Monetary Policy Committee unanimously decided to raise the Selic by 0.25 percentage points, bringing it to 15 percent per year.
Even though there were disagreements, the decision surprised part of the financial market, which had expected the rate to remain at 14.75 percent a year.
In a statement, the committee says it will keep the Selic at 15 percent a year for the next few meetings, while observing the effects of the hike cycle on the economy. However, it does not rule out further increases if inflation rises.
“The committee emphasizes that it will remain vigilant, that future steps in monetary policy may be adjusted, and that it will not hesitate to continue the adjustment cycle if it deems it appropriate,” the statement reads.
This is the seventh increase in the benchmark rate. The Selic is at its highest since July 2006, when it stood at 15.25 percent a year.
Inflation
The Selic rate is the Central Bank’s main tool for curbing Brazil’s official inflation, as gauged by the consumer price index IPCA. In May, inflation fell to 0.26 percent, despite pressure from some food items and energy costs. The result brought the indicator to a 12-month high of 5.32 percent, above the ceiling of the continuous inflation target.
Under the new continuous target system, in force since January, the inflation target to be pursued by the Central Bank, set by the National Monetary Council, is three percent, with a tolerance interval of 1.5 percentage points up or down. In other words, the lower limit is 1.5 percent and the upper limit is 4.5 percent.
The statement from the committee includes the Central Bank’s updated inflation expectations. The monetary authority predicts that the IPCA accumulated over 12 months should reach 4.9 percent in 2025 (above the target ceiling) and 3.6 percent at the end of 2026. This is due to the Central Bank’s so-called “extended horizon,” which considers the inflation scenario for up to 18 months.
