Brazil’s central bank has raised its benchmark interest rate for the first time since 2022, signaling a shift in monetary policy aimed at controlling inflation. On Wednesday, the Central Bank’s rate-setting committee, Copom, unanimously decided to increase the Selic rate by 25 basis points, bringing it to 10.75%. The move, widely expected by analysts, reflects growing concerns over inflationary pressures driven by stronger-than-expected economic growth and a resilient labor market.
The decision marks a reversal from the central bank’s previous stance, where rates had been held steady after a series of cuts. Recent data showed Brazil’s economy outperformed expectations in the second quarter, fueled by robust consumption and rising wages. This stronger economic activity, coupled with a tight labor market, has amplified inflation risks, pushing the central bank to adopt a more hawkish approach.
Policymakers emphasized their commitment to keeping inflation in check, citing the need for a “more contractionary monetary policy” in light of rising inflation projections. Brazil’s inflation rate reached 4.24% in August, well above the central bank’s 3% target, prompting concerns of prolonged price pressures. The central bank has revised its inflation forecast for 2024 to 4.3%, with expectations for inflation to remain above target through 2025.
Economists anticipate further rate hikes in the coming months, with some predicting the Selic rate could reach 11.25% by the end of the year. The central bank, under incoming leadership by Gabriel Galipolo, remains focused on stabilizing inflation and ensuring that it remains within the target range.
This shift comes in contrast to the U.S. Federal Reserve, which recently initiated a rate-cutting cycle to support economic growth. Brazil’s central bank, however, is moving decisively in the opposite direction to maintain price stability amidst rising economic pressures.
