What to expect from the next policy move by Brazil’s cenbank
Brazilian companies and investors are bracing themselves for at least two more hikes of the benchmark Selic interest rate as the central bank is seeking to reduce persistent inflationary pressures.
The bank will unveil its next monetary policy decision on Wednesday and many economists expect the next move to be a hike to 13.25% from 12.75%.
"The central bank directors have shown signs that there will be two more increases in the Selic of 50 basis points each in the next two meetings, one this week and the other one in August,” Alex Agostini, chief economist at local ratings agency Austin Rating, told BNamericas. “The problem is that I think this level of hikes may not be enough to anchor inflation expectations which are still very high."
"In my view, the central bank should maintain an increase in the Selic of at least 100 basis points this week to show that it’s committed to controlling inflation, otherwise the inflation expectations for next year will be also contaminated," he added.
The Selic was at a record low of 2% from mid-2020 until early 2021 as the central bank sought to stimulate the economy amid the impact of the COVID-19 pandemic.
The monetary authority was then forced to change its strategy as inflation began to accelerate.
The annual inflation rate for May was 11.7% compared to 12.1% in April, according to statistics bureau IBGE. The central bank’s inflation target for 2022 is 3.5%, which has forced the bank to tighten monetary policy in an aggressive fashion this year.
The combination of strong inflation and high interest rates has forced many companies to adopt a more conservative investment approach that could have a negative impact on projects and the overall economy.
The inflation problem has also been singled out by political analysts as one of the main obstacles to the reelection chances of President Jair Bolsonaro in October’s general elections.
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