(Bloomberg) — Brazil’s central bank raised its interest rate by 100 basis points and promised a hike of the same magnitude for its next meeting, slowing the pace of one of the world’s most aggressive tightening cycles in an attempt to assess the inflationary impact of rising crude oil prices.
Policymakers raised the benchmark Selic rate to 11.75% on Wednesday, as forecast by 38 of 44 economists surveyed by Bloomberg and in line with the central bank’s earlier guidance for a more moderate hike. The rest of the analysts expected a fourth increase of 150 basis points or a still high rise of 125 basis points. So far, the bank has hit rates at 975 basis points in the last 12 months.
“The moment calls for serenity to assess the size and duration of the current shocks,” policymakers write in a statement accompanying their decision. “If those shocks turn out to be more persistent or larger than anticipated, the Committee will be ready to adjust the size of the monetary tightening cycle.
Policymakers led by Roberto Campos Neto are handcuffed by inflation above 10% and lukewarm growth in Latin America’s largest economy. As commodity prices surge around the world, state oil company Petróleo Brasileiro SA last week raised the cost of diesel by as much as 25%, pushing consumer price expectations through 2024 even higher than expected. target. Gross domestic product is expected to expand by just 0.5% this year due in part to tighter monetary conditions.
Brazil’s decision came hours after the US Federal Reserve raised interest rates by a quarter of a percentage point. At the regional level, central banks from Mexico to Chile are expected to continue to support monetary policy later this month.
Annual inflation in Brazil exceeded expectations in February and, at 10.54%, is close to last year’s maximum. The increases were across the board, as adverse weather conditions pushed up food prices and manufactures faced tight supplies.
Most economists expect cost-of-living growth to slow to 6.45% in December and 3.70% in 2023, according to the median estimate from a central bank survey. Those forecasts are still above the targets for this year of 3.50% and 3.25% next.
Slow economic growth coupled with higher inflation and borrowing costs are hurting President Jair Bolsonaro’s image ahead of the October election. His administration has extended a cash transfer program, while Congress this month will enforce fuel tax cuts to cushion the blow to consumers.
Brazil offers rate hike of 100 points and promises the same boost for May
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