Get 40% Off
🚀 AI-picked stocks soar in May. PRFT is +55%—in just 16 days! Don’t miss June’s top picks.Unlock full list

Brazil raises interest rates, signals third big hike next month

Published 09/22/2021, 07:01 PM
Updated 09/23/2021, 01:37 AM
© Reuters. FILE PHOTO: People walk in front the Central Bank headquarters building in Brasilia, Brazil August 25, 2021. REUTERS/Amanda Perobelli/File Photo

BRASILIA (Reuters) - Brazil's central bank on Wednesday raised interest rates by 100 basis points and flagged a third straight hike of that size in October as it battles surging inflation with the world's most aggressive monetary tightening.

The bank's rate-setting committee, known as Copom, decided unanimously to raise its benchmark rate to 6.25% as forecast by most economists in a Reuters poll.

The move puts Brazil on the front line of a global battle against climbing consumer prices, lifting its benchmark rate from a record-low 2.00% at the start of the year as 12-month inflation flirts with double digits.

Copom outlined in its accompanying statement plans "to advance the process of monetary tightening further into the restrictive territory" with another full percentage point rate increase next month.

"This pace (of rate increases) is the most appropriate to guarantee inflation convergence to the target at the relevant horizon and, simultaneously, allow the Committee to obtain more information regarding the state of the economy and the persistence of shocks," policymakers wrote in their statement.

A weakening currency and doubts about Brazil's fiscal outlook have forced the central bank to take a hardline approach, many economists say. Growing expectations of a rate hike next year by the U.S. Federal Reserve have added to pressure on emerging markets.

Although 25 of the 35 economists polled by Reuters had predicted the 100-basis-point increase on Wednesday, there were nine predicting an even more aggressive rate hike.

© Reuters. FILE PHOTO: People walk in front the Central Bank headquarters building in Brasilia, Brazil August 25, 2021. REUTERS/Amanda Perobelli/File Photo

"I think the central bank was only slightly hawkish. I expected more," said economist Joao Leal of Rio Bravo Investimentos in Sao Paulo.

However, some warn the sharp tightening in Brazil will choke off an economic rebound in Latin America's biggest economy, killing growth and encouraging more populist policies from President Jair Bolsonaro as he seeks re-election in 2022.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.