MercoPress. South Atlantic News Agency

BCB's Copom would not hesitate to up Selic if need be

Economic activity above expectations has led Brazil to the current situation

Brazil Central Bank's Monetary Policy Committee (Copom) warned that it would not hesitate to up the basic Selic interest rate to make sure inflation meets the target if necessary.

“The Monetary Policy Committee unanimously reinforced that it will not hesitate to raise the interest rate to ensure the convergence of inflation to the target if it deems it appropriate,” read the minutes of last week's meeting that went public Tuesday. The BCB's target stands at 3% with a margin of plus/minus 1.5%.

“If such movements prove persistent, the resulting inflationary impacts may be relevant and will be duly incorporated by the Committee,” the documents added.

“As a result, the Committee assessed that the time is ripe for diligent monitoring of inflationary conditions and greater vigilance in the face of a more challenging scenario,” the Central Bank went on.

The US dollar (US$) went up Monday against the local real (R$), closing at US$ 1 = R$ 5.75. The current situation has been caused by higher-than-expected economic activity, the BCB also admitted. Higher interest rates tend to inhibit a further rise in the US currency.

The BCB also highlighted the uncertainty surrounding US monetary policy where the Federal Reserve was open last week to start cutting interest rates in the face of fears of a recession.

The Selic currently stands at 10.5% with President Luiz Inácio Lula da Silva pressing for it to be lowered, given its alleged negative impact on the economy. Lula even dubbed Central Bank President Roberto Campos Neto as a “political and ideological adversary.”

However, the Copom has been cautious enough not to commit to future strategies after unanimously voting to keep the rate unchanged for the second week in a row.