As was anticipated Brazil raised its benchmark interest rate to 10% from 9.5% on Wednesday lifting borrowing costs back to double-digit territory to battle high inflation in Latin America's largest economy.
In a brief statement, with no indication of future moves and following on a two-day meeting, Copom, the bank's monetary policy committee said that continuing with the adjustment process of the interest rate started at the April 2013 meeting, it was decided, unanimously to raise the Selic rate to 10% annually.
With the changes in the statement, the bank signals it has become more data dependent to decide between a 25 and a 50 basis point hike in the next meeting. We expect it to raise rates by 25 points, said Mauricio Molan, Santander Brazil chief economist.
He added that the bank makes reference to having started raising rates in April and it is trying to remind us that this tightening cycle has been around for some time and it has lagging effects.
It was the sixth consecutive raise in the Selic rate, which accumulates a rise of 2.75 percentage points this year. It was also the first time since early 2012 that the Selic rate reaches a two-digit value.
With the rise, Brazil became the country with highest real interest rates (basic interest rate minus inflation rate) in the world.
The Copom holds that increasing the basic interest rate is a strategy to maintain the inflation rate in the country, which accumulated to 4.38% in the first 10 months of 2013.