Central Bank of Brazil Tightens Monetary Policy for First Time since July 2011

April 18, 2013

Brazil’s Selic Rate was raised 25 basis points to 7.5%, breaking a streak of ten consecutive cuts totaling 525 basis points between August 2011 and October 2012.  Brazil is slipping into stagflation.  The easing earlier was a response to progressive slower economic growth that remains anemic.  But inflation accelerated from 6.0% in January to 6.59% as of March, which exceeds the 2.5 – 6.5% target corridor.  Today’s action was anticipated by analysts after Copom, the monetary policy committee, had stopped talking about keeping interest rates steady for a sufficiently prolonged period of time.  Today’s statement expresses concern not only about elevated inflation but also about a mounting risk that such could unhinge expected inflation.  At the same time, officials note that they will need to proceed with caution because of continuing external and internal uncertainties that could depress Brazilian growth further.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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