He Central Bank of Brazil raises the basic interest rate by half a percentage point, up to 11.25%amid expectations about official announcements of spending cuts.
It is about the second consecutive increase in the Selic in the adjustment cycle that began in September, when it rose 0.25 points.
The reference rate will go from the current 10.75% to 11.25% annually, in accordance with the almost unanimous prediction of more than a hundred financial institutions and consulting firms surveyed by the economic newspaper Valor.
Brazil will raise the rate: the reasons for the decision
The main reason for the increase is inflation “persistently off target”stated Mauro Rochlin, academic coordinator of the Getulio Vargas Foundation.
But he also highlighted the pressures exerted on the economy, the dollar, energy, the “overheating” of the labor market and a “very generous” fiscal policy.
“If we add all these factors we will understand why a decision to increase 0.50% would not be difficult to wait,” he told AFP. The president’s government Luiz Inácio Lula da Silva It tries to calm the market’s fears about its ability to meet the fiscal goal.
The Minister of Finance, Fernando Haddadsuspended a trip to Europe scheduled this week at the request of the leftist president to finish defining the spending cutting package. On Monday, Haddad said the measures could be announced this week.
The pressures on the economy in Brazil
Inflation in the largest Latin American economy rose in September to 4.42% in 12 monthsdue to the increase in the price of food and energy, driven mainly by the historic drought that the country is experiencing.
Although within the official tolerance margin (up to 4.50%), The rate remains far from the 3% goal.
By 2024, The market predicts inflation of 4.59%according to the latest Focus bulletin from the Central Bank, published on Monday.
The dollar soared last Friday to 5.86 reais, its second highest historical level. In 2024, it will already accumulate an increase of more than 20%.
On Monday, in anticipation of announcements, The US currency fell 1.48% to 5.78 reaiswhile the main index of the Brazilian Stock Exchange, the Ibovespa, advanced almost 1.87%, to 130,515 points.
The Brazilian economy grew 3.3% in the second quarter of 2024 in a year-on-year comparison. The market predicts that GDP will grow 3.10% throughout the year.
Unemployment, for its part, fell to 6.4% in the quarter from July to Septembera decrease of 0.5 percentage points compared to the previous quarter (April-June), when it stood at 6.9%.
The announcement of the Brazilian monetary authority will coincide with the meetings of the United States Federal Reserve to debate the reduction of interest rates, in the context of close presidential elections.
Source: Ambito
