By Marcela Ayres
BRASILIA (Reuters) – Brazil’s central bank kicked off an interest rate-hiking cycle on Wednesday with an increase of 25 basis points, as expected, tackling a tougher inflation outlook fueled by stronger-than-expected economic activity and fiscal concerns.
The bank’s rate-setting committee, known as Copom, voted unanimously to raise the benchmark Selic interest rate for the first time in over two years to 10.75%, in line with most forecasts. In a Reuters survey of 40 economists, 36 predicted the move, while three expected the bank to hold rates and one forecast a larger increase.
While the U.S. Federal Reserve kicked off its highly anticipated easing cycle earlier in the day, Brazil’s central bank began moving in the other direction, signaling more rate hikes to come.
“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,” Copom wrote in its policy statement.
The central bank had held its policy rate steady at 10.50% in June and July after a series of cuts since last year to bring it down from a six-year high of 13.75%.
Expectations for a rate hike, the bank’s first since June 2022, firmed after second-quarter activity significantly exceeded forecasts, driven by a robust labor market and rising wages in Latin America’s largest economy.
However, bets on tighter policy had been building since late July, when central bank minutes indicated that policymakers would not hesitate to raise borrowing costs if needed amid growing upside risks for inflation.
