Brazil Central Bank sees higher rate for extended period

Brazil Central Bank sees higher rate for extended period

Brazil’s central bank said it intends to keep its interest rate high for a “long enough period”, while reiterating that it will consider another hike in borrowing costs next month.

Policymakers will assess the need for a smaller boost in September to help bring inflation closer to target, according to minutes from their Aug. 2-3 meeting, when the board hiked rates by 50 basis points to 13.75. %. They indicated that the effects of their “quite intense and opportune” hike cycle will be present in the second half of the year, although the new fiscal stimulus may make it difficult to evaluate the economy.

The bank’s board members wrote in the document released Tuesday that their strategy “called for the monetary tightening cycle to continue to move significantly further into contractionary territory, with further tightening at this meeting and keeping the interest rate in tight territory.” significantly contractive for a sufficiently long period.

Central bank members led by Roberto Campos Neto are battling inflation that has hovered above 10% since September due to a series of hikes in food and fuel prices. Recent tax cuts have brought relief to transportation costs, pushing down estimates of consumer prices for the end of the year. Still, domestic demand is rising with a better-than-expected labor market and more government spending.

Ahead of presidential elections in October, both the president, Jair Bolsonaro, and his main opponent, Luis Inácio Lula da Silva, have pledged to boost social aid. Last week, central bankers highlighted upside risks to inflation expectations if “fiscal policies that support aggregate demand become permanent.”

Analysts forecast a rise in consumer prices of 7.11% this year, 5.36% next and 3.30% in 2024, according to a central bank survey released on Monday. The monetary authority has an inflation target of 3.5%, 3.25% and 3%, respectively, for those years.

With last week’s 50 basis point hike, central bankers have added 11.75 percentage points to borrowing costs since March 2021.

Melissa Galbraith
Melissa Galbraith is the World News reporter for Globe Live Media. She covers all the major events happening around the World. From Europe to Americas, from Asia to Antarctica, Melissa covers it all. Never miss another Major World Event by bookmarking her author page right here.