Brazil takes interest rates to 12.75% with another jump of one point

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This content was published on May 04, 2022 – 23:48

Brasilia, May 4 (EFE).- The Central Bank of Brazil raised this Wednesday the basic interest rate by one point, to 12.75% per year, in the tenth consecutive increase, with which it seeks to curb inflation that exceeds the 11% year-on-year, and anticipated that it will increase rates again at its next meeting, although at a lower level.

The Monetary Policy Committee (Copom) of the Brazilian issuer unanimously decided to repeat an increase of one percentage point, as in last March, given the worsening of the economic scenario both internally and externally due to the new outbreaks of covid-19 in China and the war in Ukraine.

With this new rise, already expected by the financial market, the basic interest rate in the largest economy in Latin America is at its highest level since January 2017, when it was 13%.

“It is appropriate that the monetary tightening cycle continues to move significantly into even more contractionary territory,” the entity said in a note.

In this sense, he anticipated that he will continue with a restrictive monetary policy, which will result in a new increase in rates at his next meeting, although this will be “of a smaller magnitude”.

“The Committee observes that the high uncertainty of the current situation, added to the advanced stage of the adjustment cycle and its impacts yet to be observed, require additional caution in its actions,” it indicated.

Among the factors that led him to raise rates again by one point, the Central Bank of Brazil cited the “deterioration” of the international scenario.

“The inflationary pressures derived from the pandemic intensified with supply problems produced by the new wave of covid-19 in China and the war in Ukraine,” he pointed out.

Likewise, the review of monetary policy in advanced countries “increases uncertainty and generates additional volatility, particularly in emerging countries,” such as Brazil, he added.

At the national level, he mentioned that there are doubts about the fiscal future of the country in a year in which there will be presidential, legislative and regional elections, and a possible slowdown in economic activity more accentuated than expected.

In addition, he stressed that “consumer inflation continued to surprise negatively.”

Inflation stood at 11.30% year-on-year in March, although the financial market expects it to close the year at around 8%, also above the ceiling of the official target, which is 5%.

The runaway rise in prices in Brazil is coupled with the lower rate of economic growth projected for this 2022, for which an expansion of the Gross Domestic Product (GDP) of just 0.7% is expected.

In addition, the country is also dealing with a high unemployment rate, still in double digits (11%), and interest rates at their highest level in the last five years may make the path to robust GDP growth even more difficult.

“Without prejudice to its fundamental objective of guaranteeing price stability, this decision also implies smoothing out fluctuations in the level of economic activity and promoting full employment,” the Central Bank acknowledged when communicating the new one-point rise in rates.

But at the same time, he stated that “he will persevere in his strategy until he consolidates not only the disinflation process,” but will also seek to get closer to “expectations regarding his goals.”

The rise in rates in Brazil has been vertiginous in the last year and a half.

The Central Bank even lowered them to 2.00% in the last part of 2020, the lowest in the historical series, to promote the recovery of Brazil after the economic blow caused by the coronavirus.

But that trend was broken in March 2021, when the issuer began a gradual rise in the cost of money that continues today, amid strong inflationary pressures, a global phenomenon that does not only affect Brazil. EFE

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