Brazil Leaves SELIC Rate Steady at 14.25%

The Central Bank of Brazil kept its key interest rate on hold for the third consecutive meeting at 14.25 percent on November 25th, the highest in nine years, as policymakers struggle to curb rising inflation amid economic contraction. The decision was not unanimous, as two of eight Copom members voted to raise SELIC to 14.75 percent while the rest voted for the rate to remain steady, an indication that the bank may start raising it in January.

The decision came in line with market expectations, as the nation is experiencing its worst recession in decades and previous rate hikes have not prevented a rise in inflation, which in October reached a 12-year high of 9.93 percent, way above its self-imposed upper limit of 6.5 percent. Also, latest data showed that through mid-November annual inflation surpassed 10 percent. 

SELIC hike campaign was initiated last September in an attempt to keep prices under control. 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. However, a series of tax hikes and a sharp currency devaluation continued to push the inflation up.

Brazil's interest rate is expected to stay at 14.25 percent until the end of the year and at 13.75 percent through 2016, analysts from about 100 private financial institutions projected at the latest FOCUS Market Readout released by the central bank on November 20th. The inflation forecasts of 10.33 percent in 2015 and of 6.64 percent next year remain higher than government's target of 4.5 percent and limit room for interest rate cuts, even though the economy is expected to contract by 3.15 percent in 2015 and by 2.01 percent in 2016.

Brazil Leaves SELIC Rate Steady at 14.25%

Joana Ferreira |
11/25/2015 11:11:39 PM