Brazil: Central Bank raises interest rate to near three-year high
October 30, 2014
At its 29 October meeting, the Central Bank’s Monetary Policy Committee (COPOM, Comite de Politica Monetaria) decided to raise the benchmark SELIC interest rate by 25 basis points from 11.00% to 11.25%. Markets had not expected this decision and foresaw no change in monetary policy. Additionally, this marked the highest interest rate in almost three years.
The Bank’s decision to increase the SELIC interest rate was not unanimous, with three of the eight members of the committee voting against the decision. In the accompanying statement, the Bank acknowledged that the balance of risks to inflation has become less favorable and that it was the appropriate time to adjust monetary policy.
In addition, this was COPOM’s first meeting since President Dilma Rousseff’s reelection on 26 October. The combination of negative growth and high inflation dominated the election debate within the country. The largest economy in Latin America has performed below expectations in recent years. Panelists believe that the surprising move by the Central Bank could potentially be the first of other policy shifts to get Brazil’s economy back on track. Enestor Dos Santos, Chief Economist for Latin America at BBVA Research comments in the BBVA Research/Latam Daily Flash 30/10 that,
This decision reinforces our view that some adjustments, including a set of more restrictive economic policies, will be implemented at the beginning of Dilma Rousseff’s second term (which officially starts on 1 January), if not earlier. At this point the most likely outcome is that the monetary tightening continues in the upcoming months.