MercoPress. South Atlantic News Agency

Brazil: Selic rate expected to keep growing next year

Yoy inflation reached 4.87%, slightly above the 3% (+/- 1.5%) target

Brazil's Central Bank's (BCB) Monetary Policy Committee (Copom) said Tuesday in a document that further hikes to the basic interest rate (Selic) were not to be ruled out next year given the rise of the US dollar against the Brazilian real, which crossed the BR$ 6 / US$ 1 barrier after the fiscal package announced by the Government of President Luiz Inácio Lula da Silva in recent days negatively impacted the market.

In the meantime, the Copom raised the Selic rate to 12.25% per annum, with an increase of one percentage point, being the third consecutive increase. The BCB also warned that such an adverse scenario called for a more restrictive monetary policy, due to the impact of the exchange rate depreciation and the loss of confidence in inflation targets. Hence, the Copom must closely monitor how the devaluation of the real and financial conditions will affect prices and economic activity. The effects of adjustments in the SELIC rate are perceived with a lag of six to 18 months, it was also explained. The BCB aims to achieve an inflation target of 3.0 percent with a fluctuation that may range from 1.5 to 4.5 percent.

Regarding the global context, the Central Bank mentioned that the external environment is still “challenging”, especially due to the economic uncertainty in the United States and the possible impact of Donald Trump's protectionist policies.

Inflation in Brazil stood at 0.39% in November after October's 0.56% for an accumulated 4.29% so far in 2024, the Brazilian Institute of Geography and Statistics (IBGE) reported Tuesday. Compared to November 2023, inflation showed an increase of 0.11 percentage points. On a year-on-year basis, that is, in the last 12 months through November, the index reached 4.87 percent, thus crossing this year's 3% target (plus/minus 1.5%).

In November, food and beverages went up 1.55%, which represented 0.33 percentage points of total inflation. The personal expenses sector also stood out, with a 1.43% increase (0.14 percentage points of total inflation). Another group that pressured inflation in November was transportation, which rose 0.89 percent and accounted for 0.18 percentage points of the index. In contrast, there was a decline in housing prices (minus 1.53 percent) and household goods (minus 0.31 percent).

The performance of the Broad Consumer Price Index (IPCA) is one of the main indicators of the country's basic interest rate, the Selic, decided by the Monetary Policy Committee of the Central Bank (Copom). The Selic rate is an instrument used by the Central Bank to control inflation. A high rate inhibits economic activity, which can contain price increases, but, on the other hand, it discourages investment and the creation of jobs and income.

In 2023, inflation in Brazil was 4.62 percent, within the government and BCB target for the first time since 2020.