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Inflation Fears Made Brazil Do It

Brazil Central Bank’s Monetary Policy Committee (Copom) decided unanimously to raise the annualized benchmark interest rate (Selic) by 0.50%, from 16.25% to 16.75%.

After the meeting, the Committee released the following justification:


“Proceeding with the process begun at September’s meeting of moderate adjustment of the benchmark interest rate, the Copom decided unanimously to raise the Selic rate to an annualized 16.75%, without bias.”


This is the second straight month in which the Central Bank has raised the rate, which had remained stable at 16% since April. In September the rate was hiked by 0.25%.


The Selic is the interest rate the government agrees to pay for the money it borrows from domestic sources. The rate is determined monthly by the Copom.


In calculating the Selic, the Copom takes into account various factors, among them the prospects for future inflation (over the next 30 days) and temporary upward or downward price trends in the economy (past inflation).


International economic conditions are also considered; for example, whether there is an excess or scarcity of money on the international market (international liquidity).


The Minister of Planning, Guido Mantega, said that the 0.50% hike in the Selic interest rate was necessary, because there was a slight growth in inflation.


The Minister explained, however, that this increase was merely nominal and that the real interest rate remains stable.


“Nobody likes an increase, but it was a precautionary step,” he affirmed.


Mantega pointed out that the cost of credit for some sectors has fallen as a result of government programs.


He cited, for example, the credit offered by the National Economic and Social Development Bank (BNDES) to micro, small, and medium-sized entrepreneurs at an average rate of 1.4%.


Agência Brasil

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