By www.CentralBankNews.info Brazil’s central bank raised its benchmark Selic rate by 25 basis points to 7.50 percent in response to a “high level of inflation,” but added that it would be cautious in any further changes to monetary policy due to domestic and external uncertainty and did not issue a bias in its future policy direction.
The Central Bank of Brazil said its policy committee, known as Copom, voted by six to two to raise the key interest rate, the first change in rates since November 2012.
The rate rise was widely expected by financial markets following a rise in inflation and warnings last week by Central Bank Governor Alexandre Tombini and Finance Minister Guido Mantega that they would not tolerate inflation.
Brazil’s inflation rate hit 6.59 percent in March – the first time since November 2011 it has been above the central bank’s upper tolerance level – continuing its steady rise since July last year.
The central bank targets annual inflation of 4.5 percent, plus/minus 2 percentage points and the bank has forecast inflation of 5.7 percent this year and 5.3 percent in 2014.
Brazil’s Gross Domestic Product rose by 0.6 percent in the fourth quarter from the third quarter, the sixth quarter with a rising growth rate.
On an annual basis, fourth quarter growth was 1.4 percent, up from 0.9 percent in the third quarter and 0.5 percent in the second quarter. Although growth is now trending upward it is still well below 2010 and 2011.
In 2012 Brazil’s economy expanded by only 0.9 percent, sharply down from 2010’s 7.5 percent.
At its previous meeting in January, the Copom committee said that stable monetary conditions for a “prolonged period” was the most appropriate strategy to ensure that inflation returns to target.
This followed the November 2012 meeting when the central bank froze rates at 7.25 percent for the first time after 10 consecutive rate cuts that began in October 2011 when the bank started its easing cycle by cutting rates from 12.0 percent.
