Brazil maintains rates and does not rule out resuming the cycle of adjustments

(Bloomberg) — Brazil’s central bank kept its benchmark interest rate unchanged after 12 straight hikes and warned it could still resume a tightening cycle if inflation forecasts fail to anchor around target.

The bank kept the Selic rate at 13.75% on Wednesday night in the first split decision since early 2016, as two directors voted for a 25 basis point increase. Thirty-eight of 45 economists surveyed by Bloomberg expected rates to remain unchanged, while the remaining seven forecast a quarter-point increase.

In a statement, board members wrote that they will keep an eye on inflation and consider keeping rates stable for a “long enough period” to bring prices to target. “The Committee reinforces that future monetary policy steps can be adjusted and that it will not hesitate to resume the adjustment cycle if the disinflationary process does not proceed as expected,” they wrote.

Monetary policymakers led by Roberto Campos Neto are seeing preliminary signs of a slowdown in inflation, with the annual rate falling below 10% for the first time in a year. Transportation costs are falling thanks to government-backed fuel tax cuts. However, the bank signaled concern over rising costs of living that remain high despite traders betting on cuts in borrowing costs by early 2023.

The decision came hours after the US Federal Reserve announced its third consecutive 75 basis point hike in interest rates, estimating they would reach 4.6% next year. Elsewhere in Latin America, central banks have continued to raise rates this month, including those in Argentina, Chile and Peru.

Furthermore, it was the last scheduled monetary policy meeting before the October 2 elections, where the main contenders are President Jair Bolsonaro and leftist Luiz Inácio Lula da Silva.

original note:

Brazil Holds Rates and Warns Inflation Keeps Tightening in Play

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