Brazil increased its key interest rate by 50bps to 12.25% on January 21st. It is the third consecutive hike, aiming to curb stubbornly high inflation and bringing the rate to its highest level since mid-2011.
Policymakers started a tightening campaign in April of 2014 and raised the SELIC rate 12 times since then by a total 500 bps. The inflation rate has been above the official target range since June of 2014, but in December it slowed to 6.41 percent. The central bank targets inflation at 4.5 percent with a two percentage points tolerance.
Yet, consumer prices are expected to increase even further this year despite recent drop in oil prices. This week, the finance minister said the government will raise taxes on fuel, imports, credit and cosmetics in 2015, aiming to narrow the budget deficit and restore confidence among investors. The government expects the revenue to increase by BRL 20.6 billion: BRL 12.2 billion from fuel taxes; BRL 7.4 billion from personal loan taxes; BRL 0.694 billion from imports and BRL 0.38 billion from cosmetics. Higher taxes are expected to hurt consumption and lower growth.
1/21/2015 10:33:26 PM