MercoPress. South Atlantic News Agency

Brazil rises Selic interest rates amid growing inflation

Brazil's inflation seriously dents Bolsonaro's chances of reelection

Brazil's Central Bank (BCB) Wednesday increased its benchmark interest rate (Selic) by 1.5 percentage points, reaching 10.75%, the first time in five years it hit double digits, amid a growing inflation and despite the consequences, this measure may have on economic growth.

The decision, which had already been heralded during the BCB December meeting when prices were reported to have risen 10.06% in the year 2021, was ratified Tuesday during the first 2022 convention of the country's Monetary Policy Committee (Copom).

The eighth straight increase to the Selic rate came after Copom admitted the economic recession and high inflation “continued to be a negative surprise.”

The nine-member panel reached this decision unanimously and acknowledged it ”currently foresees a slowdown in the pace (of rate cuts) as the most adequate policy.”

Brazil has responded to pandemic-driven inflation with one of the most aggressive tightening cycles in the world, rapidly raising the key interest rate from an all-time low of two percent in March 2021.

The country's inflation for 2021 crashed the Government's target range, which for the year 2022 has been set at 3.5 %, plus or minus 1.5 percentage points. Last year, Brazil's economy also fell into recession after contracting 0.4% in the second quarter and 0.1% in the third.

BCB economists currently forecast economic a meager 0.3% growth for 2022, which seriously affects President Jair Bolsonaro's chances of reelection and makes former President Luiz Inácio Lula Da Silva the most likely candidate to win, despite a decrease in inflation's pace during November (0.95%) and December (0.73%) of 2021.

Industrial production came in at a stronger-than-expected 3.9% growth for 2021, according to figures released Wednesday, although it remains 0.9% below pre-pandemic level.

The Central Bank's next meeting is set for mid-March. Analysts forecast a new rate hike in May, which would bring the Selic to around 12%.