Brazil is moving to dominate inflation with its third interest rate in 2021
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The Brazilian central bank raised its benchmark interest rate for the third time this year for the third time this year as Latin America’s largest economic authorities move aggressively to curb rising inflation.
The 75-point increase by Banco Central do Brasil or BCB brings the Selic rate to 4.25 percent, up from an all-time low of 2% this year.
Reflecting the many emerging nations, inflation has become a major concern for Brazilian politicians, taking pride in the economy and seeming to emerge from the worst recession caused by the pandemic.
Earlier this month, official data for the first three months of this year showed this the gross domestic product grew 1.2 percent from the previous quarter, the size of the economy returning to where it was before the pandemic occurred and pushing many economists to grow their annual growth forecast to more than 5 percent.
Consumer prices have also risen, rising more than 8% year-on-year until May, and the BCB has been forced to move aggressively between the real inflation rate and the goal of maintaining expectations between 2.25-5.25 per cent.
The central bank’s survey of market economists, however, suggests that the inflation rate will be above target until the end of this year.
“In summary, it looks like the country will have a hard time keeping its low inflation target low again, and it is likely that Selic will return to higher levels in the coming years,” said Sergio Valek, chief executive. Economist at MB Associados, citing historically high interest rates in Brazil.
The real strengthened against the dollar by less than R $ 5 on Wednesday for the first time since December, as the move was expected.
In guidelines following the rate hike on Wednesday, the BCB stated that another 75bp hike was likely in the next August decision.
“The persistence of inflationary pressures is higher than expected, especially among industrial goods. In addition, the slowing normalization of supply conditions, resistance to demand and the deterioration of the water scenario in electricity tariffs are helping to keep inflation high in the short term, despite the recent realities, “the BCB said.
Luciano Rostagno, Mizuho Bank’s chief strategist, said the forecasts indicated that the Selic rate would reach 6 per cent by the end of the year.
Inflation has risen in almost every major economy emerging this year as activity has resumed. Politicians may also be under pressure from rising U.S. bond yields to push interest rates higher than they would like to, while maintaining the attractiveness of bond investors.
It was released by the US Federal Reserve recent economic forecasts on Wednesday, and suggesting tighter monetary policies in the future could add to that pressure.
Shilan Shah, a senior economist at Capital Economics, has put Brazil next to him Russia inflation is already feared by central banks in a small group of creative markets, forcing them to tighten their credibility early in the policy.
He expects central banks in East Asia, Central and Eastern Europe and Chile to follow suit, where economic recovery is progressing, and some will start raising rates in the coming months.
But in much of Latin America, Africa and Southeast Asia and the rest of Asia, the pandemic will keep the economy in check for longer, delaying inflation and interest rates, Shah wrote in a report on Wednesday.
Brazil rising prices along with high unemployment has hit the nation’s poorest citizens, fueling the rising hunger that has complicated the Covid-19 crisis.
Additional news from Carolina Pulice
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