The bank acts to curb inflation that has exceeded the target limit of up to four years as food and fuel costs rise.
Brazil’s central bank raised its benchmark interest rate by 75 basis points and promised a new rise of the same magnitude in June as it moved to lower inflation targets on target.
The central bank on Wednesday voted unanimously to raise the Selic by 75 basis points to 3.5%, in line with estimates by 39 economists in a Bloomberg poll and also the guidelines given by policymakers at their meeting before March .
“For the next meeting, the Committee envisages the continuation of the partial normalization process with another adjustment of the same magnitude in the degree of monetary stimulus,” the bank’s board said in a statement accompanying the decision.
The bank, led by its president Roberto Campos Neto, is acting to curb inflation that has exceeded the target limit of up to four years. Food and fuel costs have risen in recent months and the government has recently restarted emergency aid that will consolidate demand. Overall, analysts see consumer prices above targets this year and next, despite an incipient recovery.
“It’s the right decision, as there are still risks in the inflation outlook,” said David Beker, Brazil’s chief economist at Bank of America Corp., before the bank’s announcement, which noted that the energy and wholesale products were the main drivers of inflation.
Helping fight inflation of policymakers is a stronger reality. The Brazilian currency has jumped 5.5% in the last month, the largest increase among emerging market currencies, making imports less expensive.
However, consumer prices rose 6.17% year-on-year until mid-April and many economists see the reading approaching 8% in May. The central bank points to annual inflation at 3.75% this year, with a tolerance range of about 1.5 percentage points.
Last month, the administration of President Jair Bolsonaro began paying another round of monthly stipends at a total cost of 44 billion reais ($ 8.2 billion). Recently, lawmakers have indicated they will seek an extension of this aid if the government does not speed up plans for a new social program, as the coronavirus continues to spread across the country.