MercoPress. South Atlantic News Agency

Brazilian Central Bank raises interest rate to its highest in nine years, 14.25%

Copom indicated headline inflation and measures of underlying inflation remain above the target and have again increased in recent releases.

The Brazilian Central Bank Copom (Monetary Policy Committee) raised the benchmark interest rate (Selic) by one full percentage point on Wednesday, from 13.25% to 14.25%, the highest since 2016, the level reached during the political crisis that ousted then president of Dilma Rousseff’s (PT) government.

The decision was unanimous among all committee members. In its statement, Copom indicates that interest rates will continue to rise in the next meeting in May, although with a planned increase of lesser magnitude if current conditions persist. Copom committed no further indication, but insisted it must contain persistent inflation in Latin America’s largest economy.

It was the fifth consecutive increase, and counter to President Lula da Silva's calls for a lower rate to boost economic growth. Copom cited a “challenging external environment” for its decision, as well as persistent inflation domestically, and signs of an “incipient moderation in growth.”

The rate was last this high between July 2015 and October 2016, when Brazil was in the grips of an economic recession.

President Lula da Silva, battling low approval ratings, argues that high lending rates hinder growth by making credit more expensive for consumers and investors.

Last month, the price for goods and services in Brazil was 5.0 percent higher year-on-year, hitting 5.0 percent for the first time since September 2023 -- outside the government's targeted upper threshold. Inflation target is 3% annualized with a 1.5% tolerance meaning the upper threshold s 4.5%.

The figure could close the year at 5.66%, according to experts consulted by the central bank. Persistent food inflation prompted the government this month to eliminate import tariffs on basic products such as meat, coffee, sugar, oil and corn.

“Headline inflation and measures of underlying inflation remain above the inflation target and have again increased in recent releases”.

However despite Lula's economic headaches, Brazil recorded a low unemployment rate of 6.5% between November and January, and growth of 3.4% in 2024 -- its best performance since 2021.

Likewise, Lula managed to appoint the new Central Bank chair, Gabriel Galipolo, but he has an orthodox approach to interest rates and inflation similar to that of his predecessor, Roberto Campos Neto, whom the Brazilian president persistently blasted and acused him of being too conservative and money tight.