• Categories
  • Archives

Brazil Hikes Key Interest Rates to 12% in Attempt to Halt Over 6% Inflation

The Brazilian realIn a decision that surprised the market, which expecting a bigger hike, Brazil’s central bank raised its benchmark interest rates, the Selic, a quarter of a percentage point from 11.75% to 12%. This was a smaller raise than two previous hikes of half a percentage point earlier this year.

The Central bank release said that “following the process of adjustment of monetary conditions, the Copom decided to raise the Selic rate to 12% a year, without a bias, with five votes in favor, and two votes asking for a 0.5 percentage point increase.

“Taking into account the balance of inflation risks, the still uncertain rhythm of the moderation of domestic activity, as well as the complexity of the international environment, the committee understands that, at the moment, the implementation of adjustment in monetary conditions for a sufficiently long period is the most adequate strategy to guarantee the convergence of inflation to the target in 2012.”

Fast rising inflation, pushed in part by soaring global food and fuel prices, has put Brazil’s new central bank President Alexandre Tombini in the difficult predicament of seeking to balance the country’s need to fight price rises with a desire to avoid hampering Brazil’s extraordinary growth story by pushing rates even higher.

The dilemma is set against real questions about how effective local interest rates are in fighting inflation caused by global trends like soaring food and fuel prices.

What’s driving concern is that an already tricky inflation scenario worsened in recent days. Brazil said Wednesday that its benchmark inflation rate, which is broadly similar to the U.S. consumer price index, quickened to 6.44% – its fastest rate in more than two years. Meantime, central bank surveys say that inflation expectations among Brazilians are deteriorating.

And Brazil’s decision on how much to raise rates is complicated by its other big macro economic headache: An overvalued currency.

Like some other emerging market countries, Brazil is letting its currency appreciate in order to stem inflation. But the Brazilian Real has already soared around 40% since early 2009 as global investors pour money into the financial system to profit – at least in part – from Brazil’s high interest rates.

Brazilian businesses are grumbling that the strong currency is making them vulnerable to competition from countries with weaker currencies, particularly manufactured goods from China.

Mercopress

 

Tags:

  • Show Comments (0)

Your email address will not be published. Required fields are marked *

comment *

  • name *

  • email *

  • website *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Ads

You May Also Like

Adman at Center of Brazil’s Corruption Scandal Met Lula’s Chief of Staff Four Times

In testimony Wednesday, August 10, before the Vote Buying Parliamentary Inquiry (CPI), adman/businessman Marcos ...

Most of Brazil’s 3,400 Refugees are from Angola and Live in Sí£o Paulo

The UN High Commissioner for Refugees reports that there are 3,400 refugees in Brazil ...

Brazil Will Stay the Course, High Interest Rates and All

Brazil’s Finance Minister Antonio Palocci said Friday in London there’s no chance that the ...

Musical Brazil: Relatively Speaking, It’s All in the Family

As regular readers of the Brazzil website know, I have a profound interest in, ...

Brazilian Chocolatier Finds Sweet Spot in Middle East in Bitter Times

After introducing is product to a few South American countries and the United States ...

Disrobed Women, Alcohol, Floats. World’s Biggest Street Party Is on in Brazil

Brazil beauties with nothing for clothing but sequins led Carnaval parades lasting until dawn ...

Gisele Bündchen Spares Charm in Her Undies, But Government Wants to Ban Her Act

The world’s most famous model, Gisele Bündchen, is a familiar figure in Brazilian magazines, ...

Brazil Tax Evasion Prevention System Draws Curious Foreigners

Interested in knowing the anti-evasion system implemented by the Brazilian Federal Revenue representatives of ...

Arabs Increase Buys from South of Brazil by 52%

Sales from the state of Paraná, in the Brazilian South, to the Arab market ...

Itaíº, Brazil’s Second Largest Bank, Takes Over LatAm’s BankBoston

Bank of America Corporation, the second largest United States bank announced Tuesday, May 2, ...