Brazil’s central bank maintains interest rates after 12 consecutive hikes

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People walk in front of the Central Bank headquarters in Brasilia, Brazil March 22, 2022. REUTERS/Adriano Machado

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BRASILIA, Sept 21 (Reuters) – Brazil’s central bank opted to keep interest rates unchanged on Wednesday, ending a cycle of aggressive monetary tightening even as U.S. and European policymakers continue to struggle to catch up inflation.

The bank’s rate-setting committee, known as Copom, decided by a 7-2 vote to leave its benchmark Selic interest rate at 13.75% after 12 consecutive hikes, as predicted by 24 of 32 economists polled by Reuters. Read more

With that, policymakers likely ended what had been the most aggressive rate-hike cycle in the world, pushing the Selic rate to an all-time high of 2% in March 2021 and putting Brazil ahead of many. central banks that only recently started raising rates.

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The Federal Reserve announced its third straight big interest rate hike on Wednesday and announced another one this year. Read more

Brazil’s central bank decided to stop raising rates after consumer prices posted their second straight monthly decline in August, helped by fuel and energy tax cuts. Read more

Still, Copom’s split decision, with two committee members voting for a “residual” 25 basis point interest rate hike, underscored lingering concerns about inflation, which has hit a peak of nearly 20. years in Brazil just a few months ago.

“The Committee stresses that future monetary policy measures are subject to adjustment and will not hesitate to resume the tightening cycle if the disinflation process does not unfold as expected,” the policymakers wrote in their decision statement.

José Francisco Gonçalves, Banco Fator’s chief economist, said that while most committee members voted to hold rates, their statement leaving the door open for rate hikes to resume sent a clear message about the need to remain vigilant in the face of price pressures.

“The hawkish message to some degree supersedes the 25 basis point increase we were expecting,” he said.

In a note to clients, he predicted the yield curve would adjust on Thursday to reflect interest rates that don’t start falling until the fourth quarter of 2023.

Others bet on the central bank’s easing policy earlier, including Economy Minister Paulo Guedes, who predicted rate cuts in early 2023.

However, central bankers have taken a tougher tone in recent public comments, stressing that it is too early to start discussing lower rates as the battle against inflation is not over. Read more

Copom’s inflation forecast for 2023 remained unchanged from last month at 4.6% in Wednesday’s release, and its outlook for 2024 rose to 2.8% from 2.7% earlier, against an official target of 3%.

Year-over-year inflation in Brazil hit double digits from September 2021 to July, suffering from a post-pandemic rebound in demand for services and soaring food and fuel prices after the war in Ukraine.

The central bank’s forecast for inflation this year fell to 5.8% from 6.8% last month, still well above the 3.5% target, with a tolerance margin of 1.5 percentage points on either side.

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Reporting by Marcela Ayres Editing by Brad Haynes

Our standards: The Thomson Reuters Trust Principles.

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