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Brazil Monetary Policy August 2022

Brazil: COPOM meets expectations and delivers 12th consecutive hike in August

At its 2–3 August meeting, the Monetary Policy Committee (COPOM) of Brazil’s Central Bank (CBC) unanimously decided to raise the benchmark SELIC interest rate by another 50 basis points—as priced in by markets—bringing it to 13.75%. The move marked the 12th consecutive raise—a cumulative 1,175-basis-point increase since the tightening cycle began in March 2021.

The decision to continue tightening its stance was once again driven by the desire to rein in stubbornly high inflation. Moreover, the Bank noted that high-frequency indicators hinted that economic activity continued to strengthen throughout the second quarter, providing more room for the rate hike.

With regard to forward guidance, the Committee once again stated in its communiqué that inflationary risks remain in both directions; chiefly the increasing risk of a sharp global slowdown on the downside and the possibility that fiscal measures to stimulate demand become permanent on the upside. As such, it reiterated that “given its projections and the risk of de-anchoring expectations for longer terms, it is appropriate that the monetary tightening cycle continues to advance significantly in an even more contractionary territory”. The Committee affirmed that it will consider a “minor residual adjustment” at its next monetary policy meeting, scheduled for 20–21 September.

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