Brazil: Central Bank raises interest rate to over-three-year high
December 3, 2014
At its 3 December meeting, the Central Bank’s Monetary Policy Committee (COPOM, Comite de Politica Monetaria) decided to raise the benchmark SELIC interest rate by 50 basis points from 11.25% to 11.75%. The SELIC interest rate is now at its highest level since September 2011. The move was partly anticipated by the markets, which foresaw an increase of 25 basis points to 11.50%.
The Bank’s decision to increase the SELIC interest rate was unanimous. In the accompanying statement, the Bank acknowledged that, given the cumulative and lagged effects of monetary policy, COPOM believes that further monetary policy should be “implemented with parsimony”.
The announcement followed October’s decision to raise the SELIC interest rate by 25 basis points from 11.00% to 11.25%. Policy makers have been trying to shift Brazil’s economy into a higher gear as Latin America’s largest economy been plagued with near zero economic growth and high inflation this year. Enestor Dos Santos, Chief Economist for Latin America at BBVA Research comments that,
In spite of the faster pace, which we see as a move by the monetary authority to try to regain credibility in its fight against inflation and which is consistent with the more restrictive tone of fiscal policy expected from the beginning of 2015 onward, the communique of yesterday’s decision signaled that the ongoing tightening cycle in the SELIC rate will not last much longer.