Brazil lifts rate by three-quarters of a percentage point to 10.25% annually, responding to signs that the country's economy has shifted into high gear.
Brazil Lifts Benchmark Rate to 10.25%
GERALD JEFFRIS And ALASTAIR STEWART
BRASILIA—Brazil's central bank raised its benchmark interest rate by three-quarters of a percentage point to 10.25% annually, responding to signs that the country's economy has shifted into high gear.
As expected, the bank's monetary policy committee decided unanimously to raise the reference Selic interest rate in a continued effort to curb heated domestic demand. It followed a previous increase of three-quarters of a point at its last meeting on April 28, when the committee started the current monetary tightening cycle.
The committee's statement was identical to that issued at the April meeting. It said that "continuing the process of adjusting monetary conditions to the prospective economic outlook and to assure the convergence of inflation to the trajectory of targets, Copom decided, unanimously, to raise the Selic rate to 10.25% annually with no bias."
Silvio Campos Neto, chief economist at Banco Schahin in São Paulo, said "The fact that the committee issued the same statement would indicate that the central bank directors are maintaining monetary strategy." As a result, economists have no cause to change their interest-rate forecasts, he added.
A central-bank survey of economists, issued Monday, forecast the Selic rate would reach 11.75% by year end, probably via three more increases.
Wednesday's move was widely anticipated among market participants, who noted the bank was under pressure to adjust rate policy to recent signs of surging economic activity.
Brazil's gross domestic product grew 9% in the first quarter, the highest quarterly figure since 1995. Local industry is struggling to keep pace with demand. The National Confederation of Industries reported use of installed industrial capacity jumped by 0.8 percentage points in April, to 83%.
As a result, inflation and inflation projections remain well above government targets.
The IBGE statistics institute on Wednesday reported that the country's IPCA consumer-price index for the 12 months to April reached 5.22%, well above Brazil's official year-end target of 4.5%.
The central bank's latest market survey forecast inflation rising to 5.64% in 2010 from 4.31% in 2009.
Though analysts believe inflation could subside in coming months as volatile food prices calm, they say it will likely resume later as local producers struggle to absorb strong domestic demand.
In the minutes for the April rate meeting, the central bank said European financial woes were a key variable in monetary policy strategy.
"Judging from the decision, the central bank still considers the international situation to be the main variable," said Flavio Serrano, an economist at BES Investimentos in São Paulo.
The central bank's next interest-rate announcement is scheduled for July 21.
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