Brazil delivers another 100 basis-point hike

Higher costs: Prices are displayed at a market in Rio de Janeiro. Annual inflation hit 9.68% in August, with eight out of nine product and service categories rising on the month. — Reuters

BRASILIA: Brazil’s central bank raised its benchmark interest rate by a full percentage point for a second straight meeting in an effort to control inflation that’s soaring toward double digits.

Policymakers led by Roberto Campos Neto lifted the Selic to 6.25%, as anticipated by 35 of 39 economists in a Bloomberg survey. The other analysts expected even bigger hikes.

The central bank has raised borrowing costs by 425 basis points since March in an aggressive tightening cycle that has done little to rein in prices.

Not only has annual inflation accelerated since then but expectations for 2022 continue to rise further above target.

Fuelling prices is a severe drought that has forced the government to increase electricity rates, as well as concerns about growing public spending that have weighed on the currency.

“Inflation has surprised to the upside and fresh surprises can also occur,” Alvaro Frasson, economist at Banco BTG Pactual SA, said before the bank’s decision.

“What remains to be seen is whether or not the hike will help calm 2022 consumer price forecasts, which keep on accelerating.”

Earlier, the US Federal Reserve decided to maintain the target range for its benchmark policy rate at zero to 0.25% while signalling it could begin scaling back asset purchases in November.

Brazil’s rate decision comes after Campos Neto said last week that the bank won’t react to every piece of high-frequency data.

Investors interpreted the remarks as a sign policymakers wouldn’t accelerate the pace of rate hikes now even after consumer prices rose more than forecast last month.

Annual inflation hit 9.68% in August, with eight out of nine product and service categories surveyed by the statistics institute rising on the month.

Analysts see consumer prices rising 8.35% this year and 4.10% in 2022, well above central bank targets of 3.75% and 3.5%, respectively.

Meanwhile, the Brazilian economy is further reopening as the pandemic eases in the country. — Bloomberg

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