The Central Bank of Brazil (BCB) raised its reference interest rate by one percentage point on Wednesday, to 11.75%, a maximum in almost five years, in an attempt to curb inflation that “continued to surprise” amid pressures exacerbated by the war in ukraine.

The rate hike Selicannounced by the Monetary Policy Committee (Copom) and in line with market expectations, is the ninth consecutive in a year, and marks a slowdown in the pace of increases compared to previous movements.

The Committee considers that “it is appropriate that the monetary tightening cycle continues to advance significantly in an even more contractive territory,” it said in a statement at the conclusion of its regular meeting.

The reference interest rate it is now the highest since April 2017, when it stood at 12.25%.

In their scenario, the authorities pondered the consumer inflationwhich “continued to surprise negatively”.

Giving no sign of slowing down, the rate of inflation stood at 10.54% in the 12 months to February. And the forecasts for 2022 climbed to 6.45%, particularly after the increases in oil and food, as a result of the conflict between Russia and Ukraine that began on February 24.

The Copom he warned of “substantial deterioration” on the external front as a consequence of the war. In particular, he highlighted that “the conflict-derived supply shock has the potential to exacerbate inflationary pressures that have already been building in both emerging and advanced economies.”

at a slower pace

The rise is in line with the consensus of economists and financial institutions consulted by the newspaper Valor Economico, who were betting that the authorities would remain consistent with their February forecasts, when they anticipated a reduction in the pace of monetary adjustment, and a position of caution for the war in ukraine.

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Thus, the movement announced this Wednesday confirms the upward path of the Selicbut no longer with jumps of 1.5 percentage points as the Copom had implemented in the last three occasions.

The Committee anticipated “another adjustment of the same magnitude” of the one decided on Wednesday for the next meeting, on May 3 and 4.

In any case, the market changed its longer-term view, forecasting a year-end Selic of 12.75% against 12.25% projected last week. Analysts point out that the rate hike policy of the central bank may extend more than expected, although moderately.

Until now, Brazil It has benefited, on the one hand, from high rates, which attract foreign capital in search of higher returns in emerging markets.

But on the other hand, the Selic Double-digit growth cooled the economy, and growth forecasts for this year were cut to 0.49%, according to the latest BCB Focus survey, after an expansion of 4.6% in 2021.


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