Sunday, May 22

Brazil raises rates by 100 bps, flags smaller increase ahead

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BRASILIA — Brazil’s central bank on Wednesday raised interest rates by a full percentage point, as expected, and flagged a smaller increase next month amid double-digit inflation and price drifting further above official targets.

The bank’s rate-setting committee, known as Copom, raised its benchmark Selic interest rate to 12.75%, a five-year high, as forecast by all 32 economists polled by Reuters.

Policymakers suggested their tenth straight rate increase would not be the last in what has been one of the world’s most aggressive ongoing rate hike cycles.

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“For its next meeting, the Committee foresees as likely an extension of the cycle, with an adjustment of lower magnitude,” policymakers wrote in the statement announcing their decision.

Central bank chief Roberto Campos Neto had indicated at the end of March that this month’s rate hike would likely end the tightening cycle, which lifted rates from a record-low 2% in March 2021.

Still, Campos Neto had stressed the central bank was keeping the door open to even higher rates in the event of unpredicted market disruptions. The war in Ukraine has added to uncertainty in recent months, disrupting global supply chains and sending prices for many commodities soaring.

Brazilian consumer prices rose 12% in the 12 months to mid-April, far above the 3.5% year-end target for 2022.

Wednesday’s rate decision made clear that policymakers’ relevant horizon for monetary policy is currently focused on 2023. Consumer prices are now expected to rise 4.1% next year, according to a central bank survey of private economists, drifting away from the 3.25% official target for next year. (Reporting by Marcela Ayres Editing by Brad Haynes)

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