USD / BRL points drop as Brazilian central bank raises Selic rate by 1.5%

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Brazilian Real, BRL, USD / BRL, Inflation, Central Bank of Brazil – Talking Points

  • Selic rate drops from 6.25% to 7.75%, biggest rate hike in two decades
  • The BCB highlights the fiscal framework as a risk of un-anchored inflation expectations
  • Bank expects “same scale” rate hike at next policy meeting

Brazil’s central bank on Wednesday raised the country’s benchmark Selic rate by 150 basis points, the bank’s biggest hike in nearly two decades. The additional fiscal spending plans have threatened longer-term inflation expectations, with the current framework “increasing the risk that long-term expectations are no longer anchored”. The Central Bank of Brazil also noted that market participants should expect a rate hike “of the same magnitude” at the next policy meeting.

USD / BRL daily chart

Chart created with TradingView

The Brazilian real has been under pressure lately as the government announced plans to ignore spending rules and increase payments to those in difficulty. Further fiscal stimulus could continue to put pressure on central bank policymakers, as policy continues to tighten at a sustained pace to tackle soaring inflation. Central bank officials previously announced plans to increase by 100 basis points (bps) at this month’s meeting, but were forced to take more aggressive action when the country’s fiscal framework changed .

The Central Bank of Brazil had not hiked rates by more than 100 basis points since 2002, with the most recent policy decision signaling the BCB’s intention to keep its promise to bring inflation back to its target. Bank. Consumer price hikes remain well above the bank’s year-end target of 3.75%, and the monetary tightening phase could continue to accelerate as the bank seeks to restore confidence in the market. the short and medium term outlook for the Brazilian economy.

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— Written by Brendan Fagan, intern

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