As expected the Brazilian central bank on Wednesday increased a whole percentage point of its basic Selic interest rate to 6,25%, the fifth in a row and the highest in two years. The Monetary Policy Committee, Copon unanimously voted for the increase in an attempt to contain inflation.
In August inflation in Brazil reached 0,87% the highest for the month in twenty-one years, with the Consumer Prices Index for the first eight months of the year at 5,67% and 9,8% in the last twelve months.
The Brazilian government's inflation target for 2021 is 3,75% with a plus/minus two points tolerance, 2,25% and 5,25%.
Based on the latest numbers, the Brazilian government now estimates inflation of 8,5% for the twelve months of 2021, in line with market expectations.
Brazilian markets are concerned about a slowing down of global economies, particularly in Asia, given the advance of the Delta variant of Covid 19 in China, the country's main market for its agricultural commodities and iron ore.
Likewise, the possibility of an energy shortfall given insufficient rain is also on the table of the central bank's Copom.
The Copom release also points out that higher rates can be expected in the last quarter of the year, and estimates annual 2021 inflation at 8,25%, probably increasing to 8,50% next year and slowing to 6,75% in 2021.