Brazil’s central bank on Wednesday raised its benchmark interest rate for the second time in a row by another 75 basis points to 3.5 per cent as it tries to curb inflation in an economy ravaged by the Covid-19 pandemic.
The unanimous decision was in line with analyst expectations, and had been signalled by the bank’s monetary policy committee in March, when they raised rates for the first time in six years.
The committee indicated on Wednesday that another rate hike of the same size was likely at the next meeting, set for mid-June.
Latin America’s biggest economy initially weathered the coronavirus economic meltdown better than its neighbours, thanks to its historic low interest rate of 2 per cent, but policymakers have been nervous about rising prices.
The central bank had said that March’s rate increase was an effort to impose ‘partial normalisation’ and prevent inflation from spiralling out of control.
Following the interest rate hike, officials announced in April that Brazil’s annual inflation rate hit 6.1 per cent in
March, breaking through the 5.25 per cent ceiling of the central bank’s target range.
The central bank now must find the balance to make sure that raising rates to curb inflation does not keep the economy from a much-needed recovery.
After Wednesday’s decision, the voting committee said that it anticipated ‘another adjustment of the same magnitude’ in June, warning the central bank may have to take additional steps to ‘ensure compliance with the inflation goal’.
The bank’s 2021 inflation target is 3.75 per cent, but could tolerate up to 5.25 per cent.
In January Brazil’s inflation forecast for 2021 was within that target at 3.34 per cent, but the rat has since reached 5.04 per cent, according to a central bank analysis.
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