The Brazilian committee for monetary policy (COPOM) has raised the interest rate benchmark by 0.5% to 13.75% per year. The decision was unanimous and came without a direction indication and in line with expectations. Therefore, Selic is back to the level of december 2008.
In the note released with the decision, the committee suggests that it did not finish the credit tightening cycle, since it’s maintaining the text used since January: “Evaluating the macroeconomic scenario and the perspectives for the inflation, COPOM has decided to raise the Selic”.
Now, the analysts debate if in the next meeting in July, the rate of 0.5% increase will be maintained, if it will drop to 0.25% or even if the cycle may be extended until September. A better understanding of this direction will probably be possible after the minutes release Thursday of next week.
The real interest, when discounted the inflation, is at 7.3%. This same index was 2.4% in April, 2013.
COPOM is clearly trying to show to the markets that this time, its search to take the inflation back to 4.5% by the end of 2016 is real. Brazil has damaged its credibility in the last few years after continuous spending deficits and a monetary policy lenient to higher inflation.
Central bank’s job of controlling the inflation may be “helped” by a stronger than expected cooling of the economy. Unemployment rate has reached 8% in May. The cooling in the economy could take some of the pressure off of the prices.
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