Central Bank of Brazil Tightens Monetary Policy Again in Face of Accelerating Inflation and Contracting GDP

July 29, 2015

Copom, Brazil’s monetary policy committee, started raising its short-term Selic interest rate from a base of 7.25% in April 2013.  Inflation then of 6.6% was above target and threatening to send inflation expectations upward.  Over the ensuing year to April 2014, the Selic rate was increased by 3.75% to 11%, and policy tightening was put on pause for the next half year until a 25-basis point increase last October.  This was followed by 50-basis point hikes last December 3, January 20, March 4, April 29, June 3, and today.  This brings the cumulative advance since April 2013 to 700 basis points, and at 14.25% the central bank rate is now higher than any time since October of 2006.  Alas, the goal of 4.5% inflation by late next year keeps slip-sliding away.  The economy is sinking into recession, on-year inflation is now above 9.0%, reflecting in large part the rapidly depreciating real, which is being pounded by the slide this year in worldwide commodity prices. 

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

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