Brazil Holds SELIC Rate at 14.25% in September

The Central Bank of Brazil kept its key interest rate unchanged on September 2nd, after seven consecutive hikes in an attempt to curb rising inflation. The SELIC rate remained at its highest level in nine years, as policymakers struggle to prevent consumer prices growth amid economic contraction.

The decision was expected by markets, as the nation is heading for its worst recession in 25 years and previous rate hikes have not prevented a rise in inflation, which in July reached a 12-year high of 9.56 percent, way above its self-imposed upper limit of 6.5 percent. Also, latest data showed that through mid-August the inflation was recorded at 9.57 percent. 

Brazilian economy contracted sharply by 1.9 percent on quarter and by 2.6 percent year-on-year in the April-June period, due to a slump in private consumption and investment. In addition, unemployment rate jumped to 7.5 percent in July, the highest since May of 2010; and industrial production dropped by 8.9 percent year-on-year in July, 17th straight month of decline. Meanwhile, the Brazilian real has slipped more than 28 percent against the U.S. dollar this year, hitting its lowest level in nearly 13 years.

SELIC hike campaign was initiated last September when inflation reached 6.5 percent. Since then, the central bank has raised the rate by 325 basis points in an attempt to convince the markets it is committed to the inflation target.

At the latest FOCUS Market Readout released by the Central Bank on August 28th, analysts from about 100 private financial institutions said that they were expecting Brazil's economy to contract by 2.26 percent in 2015 (against a 2.06 percent contraction estimated last week); annual inflation to grow to 9.28 percent (against 9.29 percent last week); and industrial production to decline by 5.57 percent (against a 5.20 percent shrinkage last week); unveiling the worst economic performance since 1990.

Brazil Holds SELIC Rate at 14.25% in September

Joana Ferreira |
9/3/2015 10:43:30 AM