Central Bank raises benchmark interest to 5.25% a year

Amid hikes in food, fuel, and energy prices, the members of the Central Bank’s Monetary Policy Committee (Copom) unanimously decided to raise the economy’s benchmark interest rate, the Selic, from 4.25 to 5.25 percent a year.

This has been the fourth consecutive adjustment to the Selic rate, but the pace has increase. At each of the last three meetings, Copom had raised it by 0.75 percentage points.

In a statement, Copom said that it also plans to expand the rate by one percentage point at the next meeting (September 21–22). The agency called for the continuity of structural overhauls in the economy and warned about the risk of approving measures that permanent increase of public spending.

“Copom reiterates that persevering in the process of necessary reforms and adjustments to the Brazilian economy is key to allowing the sustainable recovery of the economy,” he text reads.

Inflation

The Selic is the main tool used by the Central Bank to curb the official inflation, as gauged by the National Broad Consumer Price Index (IPCA). The indicator closed out June at the highest level for the month since 2018, up 8.35 percent in 12 months, pressed by the dollar and higher electric energy costs.

The amount is above the target of the inflation. For 2021, the National Monetary Council (CMN) had set the target of the inflation at 3.75 percent, with a tolerance margin of 1.5 percentage points. The IPCA, however, should not surpass 5.25 percent or be lower than 2.25 percent.

The benchmark interest rate is used in negotiations of bonds under the Special Clearance and Escrow System (Selic), and serves as a gauge for other interest rates of the economy.