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By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – In a surprising move Brazil’s Central Bank (CB) Copom (Monetary Policy Committee) increased the Selic (benchmark interest rate) by 25 basis points to 11.25 percent on Wednesday afternoon, taking the rate to its highest level since November 2011. The last time the Copom increased the Selic was in April of 2014.

Banco Central in Brasilia
Brazil’s Central Bank Monetary Policy Committee announces increase in interest rates, photo courtesy of Banco Central do Brasil.

“For the Committee, the intensification of relative price adjustments in the economy has turned the balance of risks for inflation less favorable. The Committee considered it fitting to adjust the monetary conditions so as to guarantee, at a lower cost, the prevalence of a more benign scenario for inflation in 2015 and 2016,” said the Copom in a statement shortly after the decision.

According to the statement released by the Central Bank committee, the decision to increase the Selic was not unanimous among voting members, with five members opting to increase the interest rate and three members of the board voting to maintain the rate at eleven percent per year.

The increase surprised most analysts, since during the presidential campaign earlier this year, President Dilma Rousseff’s Workers Party (PT) stressed the fact that if opposition candidate Aecio Neves won the election one of the measures he would probably take would be to increase short-term interest rates. President Dilma Rousseff was re-elected on Sunday, October 26th to her second term in one of the tightest presidential races the country has seen since its return to democracy in 1985.

The Selic rate is the Central Bank’s main instrument to maintain inflation under control. In September, Brazil’s main inflation index, the IPCA (Consumer Price Index), increased by 0.57 percent, more than double the increase seen the month before.

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4 COMMENTS

  1. Brazil needs to remove also energy subsidies and allow prices to be dictated by markets. Genuine growth takes place when the economy begins to handle market prices. Subsidies only increase market efficiency. In Brazil inflation is the result also of weakening currency. This is more due to politics and corruption in the system. The most important company in Brazil is under a cloud. How can one expect the country to do well when the climate for foreign investment is not right?
    Brazil should follow the market friendly policies being implemented in India.

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