Which Zero interest rates? Brazil raises benchmark rate to double digits
By Samantha Pearson in São Paulo
Brazil has raised its benchmark interest rate by 50 basis points to 10 per cent, pushing it into double digits for the first time since March last year as the Latin American country grapples with stubbornly high inflation.
The central bank hiked the Selic rate late on Wednesday for the sixth time in a row, extending what has become the world’s biggest tightening cycle.
“Giving continuation to the adjustment of the benchmark interest rate, which began with the meeting in April 2013, the Copom (central bank’s monetary policy committee) decided unanimously to raise the Selic rate to 10 per cent a year, without bias,” the bank said in an accompanying statement.
However, the brief note differed from previous statements released by the bank by omitting any references to inflation trends and reminding investors that rates have already been hiked many times this year. For economists, it appeared to be a signal that Brazil’s tightening cycle could finally be nearing its end.
“It seems like a pretty neutral statement on its own but when you look at it in the sequence of other statements . . . it could be read as the first step to changing the pace of tightening in January,” said Marcelo Salomon, an economist at Barclays.
Next week’s gross domestic product data that are expected to show that Brazil’s economy contracted in the third quarter could lead the bank to increase the Selic rate by only 25 basis points at its next meeting in January, said Mr Salomon.
Since April, the central bank has raised interest ratesby a total of 275 basis points in what has been seen as a dramatic U-turn in the country’s monetary policy and a symbolic defeat for President Dilma Rousseff.
When Brazil pushed its Selic rate down to a record low of 7.25 per cent in October last year, it raised hopes that the country could finally rid itself of its traditionally high borrowing costs.
However, rising inflation has forced the central bank to change tack, especially as complaints over price rises and frequent protests across the country threaten to damage Ms Rousseff’s popularity ahead of presidential elections next year.
Annual inflation broke through the 6.5 per cent ceiling of the country’s tolerance band in both March and June this year, and still stands around 5.8 per cent – far from the country’s 4.5 per cent target level.
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