Brazil’s Selic Interest Rate Hiked 50 Basis Points to 13.75%

August 3, 2022

The monetary policy committee at the Central Bank of Brazil, known as Copom, today implemented its twelfth interest rate hike since March 2021. After cutting the rate by 250 basis points during 2020, the rate level when normalization began was 2.0%. Seven increases during 2021 had totaled 725 basis points, and today’s move was the fifth one of 2022. The 50-basis point size of the latest change matched the previous one in June and increased the incremental tightening this year to 450 basis points. More increases are necessary. Although the rate level now exceeds CPI inflation of 11.9%, inflation expectations far exceed the medium-term goal. According to today’s statement,

Given its inflation projections and the risk of a deanchoring of long-term expectations, it is appropriate to continue advancing in the process of monetary tightening significantly into even more restrictive territory. The Committee emphasizes that it will persist in its strategy until the disinflation process consolidates and anchors expectations around its targets.

The Committee will evaluate the need for a residual adjustment, of lower magnitude, in its next meeting. The Copom emphasizes that it will remain vigilant and that future policy steps could be adjusted to ensure the convergence of inflation towards its targets. It also stresses that the uncertainty of the current scenario, both domestic and foreign ones, coupled with the advanced stage of the current monetary policy cycle, and its cumulative impacts yet to be observed, require additional caution in its actions.

The latest rate hike was supported unanimously.

Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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