MercoPress. South Atlantic News Agency

Brazil raises basic rate to 13.75%, highest in two years

The Brazilian Monetary Policy Committee (Copom) of the Central Bank (BC) raised the base interest rate (Selic) by 0.75 percentage point, from 13% to 13.75% a year. This is the fourth consecutive hike in Selic and the highest is almost two years.

The Copom vote apparently was 5-3. Dissenters favored a 0.50 percentage points increase. In a statement the Central Bank said it was raising rates "to promote the conversion of the inflation to the target trajectory in a timely fashion". Even with falling commodity prices that pushed inflation lower in August to 6.17% from a three-year high of 6.37%, the orthodox central bank seems intent in insuring demand growth does not outpace supply and keeps to the original inflation target of 4.5% for 2008. Concerns were heightened when earlier data showed the economy expanded at 6.1% in the second quarter. The Copom after raising the Selic rate by a larger-than-expected 0.75 percentage point in the previous meeting July 23 used the same language to express their goal of bringing inflation back to its target in a "timely fashion". A central bank survey of 100 economists anticipates the Selic rate will further increase to 14.75% by the end of the year. The Brazilian central bank started to raise the Selic rate at the April meeting after holding it unchanged for six months at a record low of 11.25%. Policy makers had increased the rate by half a percentage point twice before accelerating the pace in July. The rate now stands at the level it was in November 2006.