The Central Bank of Brazil faces a challenging scenario in which, faced with robust economic growth and internal inflationary pressures, it is likely to continue to adjust the Selic rate upwards to stabilize the economy.
The Central Bank of Brazil faces a challenging scenario given the persistence of economic growth and inflationary pressures, which justifies the need to continue adjusting the Selic rate. On September 18, the bank increased the reference rate from 10.50% to 10.75%.
According to recently published minutes, the monetary policy committee noted that the combination of a strong labor market, expansionary fiscal policy and an increase in consumer credit are boosting aggregate demand. This context calls for a careful review of monetary policy.
For analysts in the neighbouring country, the main focus of the Central Bank is domestic inflation, driven by economic expansion and fiscal deterioration. According to their analysis, at least two more increases in the Selic are expected before the end of the year, reaching 11.75%.
What the projections for the economy in Brazil say
Unlike economies like that of USAwhere rates have been cut in response to the slowdown, Brazil has exceeded expectations with sustained growth in the first half of 2024. Public spending and the strength of the labor market have been key to this dynamism, forcing the Central Bank to act preventively to control inflationary expectations.
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According to projections, the cycle of interest rate increases could extend until the first quarter of 2025, with the Selic reaching 12.5%. Although monetary adjustment is being carried out gradually, it is not ruled out that the pace will accelerate in the next meetings, given the resilience of the economy and the pressures on prices.
The authorities, headed by Roberto Campos Neto, have been clear in pointing out that, although they cannot always give precise guidance on future movements, they are committed to maintaining economic stability and acting firmly in the face of any sign of deviation from the 3% inflation target.
Source: Ambito
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