Brazil Raises Basic Interest Rate to 10.25% While Country Grows Unheard of 9%

Brazilian real coin Brazil’s Monetary Policy Committee (Copom) from the Brazilian Central Bank (BC) boosted this Wednesday the country’s basic interest rate (Selic) to 10.25% a year, in line with the expectations of the financial market. Analysts expect the rate to continue increasing this year up to 11.75% as a way to contain inflationary pressures.

In a short note, the Copom informed that “in continuation to the process of adjusting monetary conditions to the prospective scenario of the economy, to ensure convergence of inflation to the target’s trajectory, the Copom decided unanimously to raise the Selic rate to 10.25 % a year without bias,” ie without the possibility of revision until the next meeting in 45 days.

This was the second adjustment of the Selic this year. The first occurred at the end of April, when the rate, which serves as a parameter for the national financial system, was fixed at 9.50%, after nine consecutive months at 8.75% – the lowest in the history of the BC since 1964.

Record GDP Growth

Brazil’s economy grew 9% in the first quarter of this year, compared to the same period in 2009. That is the highest GDP growth rate ever recorded in the country, according to the government statistical bureau, the IBGE, which released the numbers.

Industrial sector output increased 14.6%, compared to 2009. The services sector grew 5.9%, and the farm sector was up 5.1%.
Investments in machinery and equipment surged 26%, construction was up 14.9% while imports of goods and services rose sharply by 39.5%.

Following the strongly optimistic remarks made by the president of the Central Bank, Henrique Meirelles, regarding the very strong growth of GDP in the first quarter, a surprised minister of Development, Industry and Foreign Trade, Miguel Jorge, sounded a note of caution.

“We were not supposed to grow that much,” exclaimed the minister after being informed that GDP was up 9%, compared to the first quarter of 2009, and 2.7%, compared to the last quarter of 2009. Jorge pointed out that growth at that rate could generate inflation and create problems with logistics.
“We have a lot of problems with logistics that must be resolved,” said the minister.

ABr

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