Brazil’s central bank raised its benchmark Selic rate by 50 basis points to 8.0 percent to help bring down inflation and “ensure that this trend will continue next year.”
In a brief statement, the Central Bank of Brazil said its policy committee, known as Copom, had agreed on the rate rise unanimously and it did not issue a bias about the future trend of policy.
It is the second consecutive rate rise by Brazil’s central bank following a 25 basis point rise in April, bringing this year’s total rate increase to 75 basis points. In 2012 the central bank cut rates by 375 basis points in response to declining economic growth before freezing rates from November through March.
Today’s rate rise was largely expected and follows recent warnings by the central bank’s governor that he would do “what is needed, in a timely manner, to ensure inflation declines.”
Brazil’s inflation rate eased to 6.46 percent in the rolling one-month period through May 15 from 6.49 percent in April, close to the upper limit of the central bank’s target range of 4.5 percent, plus/minus two percentage points. It was first decline since inflation started to accelerate in July 2012.
The central bank has forecast inflation of 5.7 percent this year and 5.3 percent in 2014.
Brazil’s Gross Domestic Product expanded by 0.6 percent in the first quarter, the same quarterly rate as in the fourth quarter, for annual growth of 1.9 percent, up from 1.4 percent in the fourth quarter, continuing a rebound since hitting a recent low of 0.5 percent in the second quarter of 2012.
Nevertheless, growth in the first quarter was below expectations as industrial output dropped, driven by a 6.6 percent drop in mining, along with lower construction activity.
Earlier today, the central bank lowered its 2013 growth forecast to 2.93 percent from 2.98 percent but maintained the 2014 forecast at 3.5 percent. In 2012 the economy expanded by only 0.9 percent.
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Brazil’s central bank raised its benchmark Selic rate by 25 basis points to 7.50 percent in response to a “high level of inflation,” but added that it would be cautious in any further changes to monetary policy due to domestic and external uncertainty and did not issue a bias in its future policy direction.
The Central Bank of Brazil said its policy committee, known as Copom, voted by six to two to raise the key interest rate, the first change in rates since November 2012.
The rate rise was widely expected by financial markets following a rise in inflation and warnings last week by Central Bank Governor Alexandre Tombini and Finance Minister Guido Mantega that they would not tolerate inflation.
Brazil’s inflation rate hit 6.59 percent in March – the first time since November 2011 it has been above the central bank’s upper tolerance level – continuing its steady rise since July last year.
The central bank targets annual inflation of 4.5 percent, plus/minus 2 percentage points and the bank has forecast inflation of 5.7 percent this year and 5.3 percent in 2014.
Brazil’s Gross Domestic Product rose by 0.6 percent in the fourth quarter from the third quarter, the sixth quarter with a rising growth rate.
On an annual basis, fourth quarter growth was 1.4 percent, up from 0.9 percent in the third quarter and 0.5 percent in the second quarter. Although growth is now trending upward it is still well below 2010 and 2011.
In 2012 Brazil’s economy expanded by only 0.9 percent, sharply down from 2010’s 7.5 percent.
At its previous meeting in January, the Copom committee said that stable monetary conditions for a “prolonged period” was the most appropriate strategy to ensure that inflation returns to target.
This followed the November 2012 meeting when the central bank froze rates at 7.25 percent for the first time after 10 consecutive rate cuts that began in August 2011 when the bank started its easing cycle by cutting rates from 12.50 percent.
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