Brazil’s central bank said in the minutes of its latest Monetary Policy Committee meeting that inflation expectations rose in recent weeks and remain above the inflation target at all horizons. The minutes, published on Tuesday, said that requires higher interest rates for longer than would have been appropriate in the past.
Rate cuts interrupted
The Copom interrupted its cutting cycle of five meetings and held the Selic at 13.75 percent per year. Consumer inflation has been accelerating, with the 12-month rate above the upper bound of the tolerance interval.
Analysts have raised their inflation forecasts and cut growth expectations, and they now expect higher rates. Dollar forecasts have also risen.
Fiscal and oil risks
The minutes say fiscal slippage, a slower pace of structural reform, growth in directed credit and debt uncertainty could push up the neutral interest rate. They also cite oil supply shocks and prolonged armed conflicts in the Middle East, along with tighter monetary policy in advanced economies.
Asset prices adjusted sharply after confirmation that Lula will serve another four years as president. The central bank’s target is 3 percent, with a tolerance interval of 1.5 to 4.5 percent.
Policy stance
The central bank said perseverance and firmness in rate policy would help re-anchor expectations at a lower cost. Brazil’s real interest rate is the highest in the world.
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Source: Brazil's central bank | Data: FRED — St. Louis Fed
