Brazilian Selic Rate Began 2021 at 2.0% and Ending the Year at 9.25%

December 8, 2021

The Copom committee at the Central Bank of Brazil that decides monetary policy settings unanimously voted to hike its Selic interest rate by 150 basis points to 9.25%, matching the previous advance in October that had been the largest since 2002. Rate cuts of 250 basis points in 2020 have been far exceeded in 2021 by hikes totaling 725 bps, as CPI inflation climbed from 4.56% in January to 10.67% as of October. According to a released statement,

Given the increase in its inflation projections and in the risk of a deanchoring of long-term expectations, it is appropriate to advance the process of monetary tightening significantly into the restrictive territory. The Committee will persist in its strategy until the disinflation process and the expectation anchoring around its targets consolidate. For the next meeting, the Committee foresees another adjustment of the same magnitude.

Today’s vote was decided unanimously. The statement also criticizes fiscal policy. “Doubts regarding the fiscal framework increase the risk of deanchoring inflation expectations, keeping the upward asymmetry in the balance of risks. This implies a higher probability of inflation paths above the one projected under the baseline scenario.”

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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