BUENOS AIRES, Sept 13 (Askume) – Brazil’s central bank will raise its benchmark interest rate by 25 basis points next Wednesday, Askume reported, in what could be the start of a short-term tightening campaign to combat a persistent inflation trend going in the opposite direction.
The move will undo a 25 basis point rate cut implemented in May, the last in a series of cuts that brought the Selic rate down from a cycle high of 13.75% to 10.50%. Interest rates remained unchanged at 10.50% in June and July.
Members of the central bank’s Monetary Policy Committee (Copom) are likely to reinforce their concerns about keeping inflation above target amid an expected deceleration in consumer price trends.
On the same day that the Brazilian Central Bank (BCB) is expected to raise interest rates, the Federal Reserve is expected to begin a series of interest rate cuts, with the first reduction being 25 basis points.
According to 36 out of 40 economists surveyed from September 9 to September 12, the BCB’s Selic index will rise by 25 basis points to 10.75% on September 18. Three saw no change, and one saw a larger increase, reaching 50 basis points.
“Given the highly uncertain local situation, the likelihood that Copom will begin a tightening cycle remains high even if the external environment improves,” economists at Guide Investimentos wrote in a note.
“The impact of the central bank’s recent communications on markets leads us to believe that the most effective way to deal with higher inflation expectations is to take preemptive action to end any tightening efforts as soon as possible.”
Since BCB Governor Roberto Campos Neto mentioned the possibility of gradual adjustments last month, yield curve prices have pointed to a higher probability of potential rate hikes. Even President Luiz Inacio Lula da Silva, who generally opposes raising interest rates, has said he might support such an approach at some point in the future.
Inflation has recently moved even further away from the official target as prices for services have risen due to a tightening job market. Despite some relief last month, the trajectory remains troubling, with energy costs rising as dry weather reduces hydropower generation.
Thirty respondents answered additional questions about the central bank’s next steps following this month’s decision, while 27 predicted another rate hike at its November meeting.
Three of those who left rates unchanged on September 18 expected a rate cut later.
In response to a question on how much they expected interest rates to rise after next week, 25 of the respondents expected a 25 basis point increase on September 18 and another hike two months later, while 13 predicted a 50 basis point increase. basis points.
The survey shows that the central bank will continue to adjust the Selic to the cycle high of 11.50% in the first quarter of 2025, and then start easing policy.
(Additional reporting from Askume Global Economic Poll)
