Brazil Raises Selic Rate to 11.25%


The Central Bank of Brazil decided to raise the benchmark interest rate by 25 bps to 11.25 percent on October 29th. It is the fourth rate hike in 2014 aiming to curb stubbornly high inflation.

The decision was quite unexpected. Policymakers said recent price adjustments increased inflationary risks, making it appropriate to adjust monetary conditions to ensure a more benign inflation outlook for 2015 and 2016. Yet, three members of the Monetary Policy Comittee known as Copom voted to leave the Selic rate on hold at 11 percent.

In September, annual inflation rate accelerated to 6.75 percent, touching the highest level in three years and staying above the upper limit of the central bank's target of 4.5 percent with two-point tolerance range for the first time in fifteen months. Consumer prices have been on an upward trend since the beginning of the year due to increase in consumer demand, wage growth and the depreciation of the real which fell more than 10 percent against the US dollar since September.
 
Amid inflation concerns, the economic outlook remains weak. Industrial production contracted for the sixth consecutive month by 5.4 percent in August compared with the same month a year earlier and retail sales shrank by 1.1 percent. In September, the country posted its first trade deficit in seven months as a weak real raised imports cost. In its September Inflation Report, the central bank cut the GDP growth forecast by 20 bps to 0.7 percent in 2014.
   

Brazil Raises Selic Rate to 11.25%


Carolina Cunha | carolina.cunha@tradingeconomics.com
10/29/2014 11:04:40 PM