Brazilian President Luiz Inácio Lula da Silva and his cabinet take part in a meeting with governors to discuss changes in public security policies at the Planalto Palace in Brasília, on October 31, 2024. (Photo by Sergio Lima / AFP)
Brasília, Brazil — Brazil’s central bank on Wednesday hiked its key interest rate half a point to 11.25 percent amid pessimistic inflation forecasts in Latin America’s biggest economy.
It was the second consecutive increase in the bank’s Selic rate, after its COPOM monetary policy committee decided in September to raise it to 10.75 percent.
Brazil’s rate direction is running opposite to the United States and the European Union, whose central banks have started cutting interest rates on assessments they have managed to cool inflation.
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In Brazil, inflation in September came in at 4.42 percent on annualized basis, well above the three-percent target.
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The impact of a prolonged drought on the price of food and electricity was seen as a prime reason.
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The market forecast for inflation for all of 2024 was 4.59 percent, the Brazilian central bank’s Focus bulletin said on Monday.
Mauro Rochlin, of the Getulio Vargas Foundation think tank, said a combination of a high US dollar weighing on the Brazilian real, “overheating” in the labor market, and “overly generous” budget measures were also all factors.
President Lula Inacio Lula da Silva’s government has sought to calm jitters over public finances.
Finance Minister Fernando Haddad canceled a Europe trip he was to make this week to finalize a budget package expected to contain cost-cutting measures.
Brazil’s economy grew 3.3 percent in the second quarter of this year, compared to the same period in 2023. Market forecasts point to 3.1 percent growth for all of 2024.
Unemployment in the third quarter fell half a percentage point to 6.4 percent.
The central bank’s rate rise in September was the first in two years.
Lula has repeatedly criticized rate increases, arguing they sap growth and scare off investment.
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The bank’s COPOM committee will meet next in December.
