Brazil’s Central Bank increased the interest rate by 0.25% yesterday, 18 September 2024, bringing the benchmark rate to 10.75%. This hike marks the first increase in interest rates in over two years.
The central bank also indicated that additional interest rate hikes are forthcoming to address a challenging inflation outlook driven by unexpectedly robust economic activity. Policymakers indicated that inflation risks have shifted upward due to a stronger labor market and robust growth.
“The pace of future adjustments of the interest rate and the total magnitude of the cycle that just started will be determined by the firm commitment of reaching the inflation target and will depend on the inflation dynamics,” said Copom, the central bank’s interest rate-setting committee, in its policy statement. “The scenario, marked by resilient economic activity, labor market pressures, positive output gap, an increase in the inflation projections, and unanchored expectations, requires a more contractionary monetary policy.”
The central bank maintained a steady rate of 10.50% in June and July after reducing it from a six-year high of 13.75%.
