Central Bank of Brazil Tightens Credit Again

March 4, 2015

The monetary policy committee, known as Copom, raised the Selic interest rate by another 50 basis points, matching increases made on January 20 and December 3rd.  There also was a 25-basis point hike last October and 375 basis points of tightening between April 2013 and April 2014.  The new Selic rate level of 12.75% will be 550 bps higher than prior to April 2013 and constitutes its highest level since that between January 22, 2009 and March 12, 2009.  The vote to tighten in spite of Brazil’s apparent descent into recession was made unanimously, and the brief released statement was essentially the same as the one after January’s rate hike.  No indication was given that rates have yet peaked.  A depreciating real has put upward pressure on inflation, which at 7.1% in January, exceeded the central bank’s 2.5-6.5% target range.  The hope is to return inflation to target by 2016.  Given Brazil’s historic bouts with hyperinflation, officials are fearful of inflation staying high for too long.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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