Central Bank of Brazil raises interest rate to 10.75%

Brasilia. The Central Bank of Brazil raised the Selic reference rate this Wednesday by a quarter of a percentage point (0.25 points) to place it at 10.75 percent, in a unanimous decision, and highlighted that the pace of future adjustments and the total magnitude of the cycle They will be dictated by the firm commitment to bring inflation to the target.

The bank’s monetary policy committee, known as Copom, voted unanimously to raise the benchmark Selic interest rate for the first time in more than two years, in line with most forecasts.

In a Reuters poll of 40 economists, 36 predicted the move, while three expected the bank to maintain rates and one predicted a bigger hike.

Policymakers said the balance of inflation risks is now tilted to the upside, pointing to a stronger-than-expected labor market and robust growth.

“The scenario, marked by resilient economic activity, pressures in the labor market, a positive output gap, an increase in inflation projections and unanchored expectations, requires a more contractionary monetary policy,” they wrote.

While the US Federal Reserve kicked off its long-awaited easing cycle earlier in the day, Brazil’s central bank began moving in the other direction, signaling that more rate hikes are on the way.

“The pace of future interest rate adjustments and the overall magnitude of the cycle that has just begun will be determined by the firm commitment to achieving the inflation target and will depend on the dynamics of inflation,” Copom wrote in its statement. of monetary policy.

In June and July, the central bank kept the official interest rate at 10.50 percent, after a series of cuts since last year that put it at 13.75 percent, its highest level in six years.

Expectations for a rate hike, the bank’s first since August 2022, strengthened after second-quarter activity significantly exceeded forecasts, driven by a strong labor market and rising wages in America’s largest economy. Latina.

However, bets on tighter policy had been rising since late July, when central bank minutes indicated policymakers would not hesitate to raise borrowing costs if necessary amid growing upside risks to inflation. .