Brazil raises interest rates for the third time in 2021 to curb inflation

The Brazilian Central Bank raised its benchmark interest rate for the third time this year on Wednesday because the Latin American authorities Largest economy Actively take action to curb rising inflation.

The Central Bank of Brazil (Banco Central do Brasil) or BCB raised 75 basis points to raise the Selic interest rate to 4.25% from a historical low of only 2% earlier this year.

As with several large emerging countries, inflation has become a core concern of Brazilian policymakers as the economy recovers and seems to be out of its worst period. Recession caused by the pandemic.

Earlier this month, official data for the first three months of this year showed that GDP growth An increase of 1.2% from the previous quarter has restored the size of the economy to the level before the pandemic, and prompted many economists to raise their annual growth forecast to more than 5%.

Consumer prices have also soared, rising by more than 8% in the year to May, forcing BCB to take proactive actions to keep actual and expected inflation rates within the target range of 2.25-5.25%.

However, the central bank’s own survey of market economists shows that the inflation rate will still be higher than the target by the end of this year.

“In short, if the country starts to grow again, it seems it will be difficult to maintain low inflation targets, and we may have to see Selic return to a higher level in the next few years,” Chief Executive Sergio Vale ) Means. The economist at MB Associados, alluding to BrazilHistorically high interest rates.

In anticipation of this move, the real exchange rate against the U.S. dollar rose to below 5 reals for the first time since December last year.

In its guidance after the interest rate hike on Wednesday, BCB hinted that its next decision in August might raise interest rates by another 75 basis points.

“The persistence of inflationary pressures is greater than expected, especially in industrial products. In addition, despite the recent appreciation of the real, the impact of the slow normalization of supply conditions, demand elasticity, and deteriorating water conditions on electricity prices will help maintain high prices in the short term. Inflation,” BCB said in its report. Decided.

Luciano Rostagno, chief strategist at Mizuho Bank, said that forecasts show that the Selic interest rate will reach 6% by the end of the year.

With the recovery of economic activity, the inflation rate of almost all large emerging economies has risen this year. Policy makers are also under pressure from rising US bond yields, which may prompt them to raise interest rates in order to remain attractive to bond investors.

The Federal Reserve Board issued Latest economic forecast Wednesday, and its recommendations on future tightening of monetary policy may increase this pressure.

Capital Economics Senior Economist Shilan Shah puts Brazil aside Russia In a few emerging markets, inflation has frightened central banks, forcing them to tighten policies early to maintain credibility.

He expects central banks in parts of East Asia, Central and Eastern Europe, and Chile to follow closely. The economic recovery in these regions is progressing well, and some central banks will start raising interest rates in the coming months.

But for most of the remaining time Latin AmericaShah wrote in a report on Wednesday that in parts of Africa, South Asia and Southeast Asia, the pandemic will keep the economy down for longer, thereby curbing inflation and interest rates.

in Brazil Price increased This, coupled with the high unemployment rate that has hit the country’s poorest citizens, has exacerbated the surge in hunger that has complicated the Covid-19 crisis.

Additional reporting by Carolina Pulis

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