The central bank of Brazil has raised the key rate from 9,5 to 10%. And it did so for the sixth time in a row, reaching its highest level since March 2012.
The move comes as the South American country tries to curb inflation. Consumer prices grew by 5,8% in October compared to the previous year, well beyond the expectations of analysts, who – writes the BBC site – they expected a +4,5%.
The price run is, in part, due to the fall of the real. The Brazilian currency has lost about 20% of its value against the US dollar since May.
According to reports from the Wall Street Journal, the effects of the increase will begin to be seen in 6/9 months.
The central bank is optimistic: expected inflation should be less galloping than what has happened so far and the operation could curb it.
But the institute is still at an impasse. As it raises rates to tame inflation marching at +5,8% a year, the government has ramped up spending in a bid to stimulate slowing economic growth.
To complicate the situation there is the possibility that next year the US Federal Reserve will implement the policy of tapering – reduction – of the stimulus to the US economy. A move that would strengthen the dollar and put the real in difficulty.
And then there is the question of fuel. Petroleo Brasileiro, the state oil company, which has long controlled the cost of petrol despite international fluctuations in crude oil, now wants to adjust prices to carry forward its ambitious investment plans. However, the Brazilian executive is concerned that the increases could actually jeopardize efforts to contain inflation.
“The race in prices is below 6% only thanks to some controlled prices, such as those of petrol – clarifies to the Wall Street Journal Marcelo Carvalho, chief economist for Latin America at BNP Paribas – In reality, inflation is 7% . Gasoline prices have been brought down, but they will have to go up. This is why we forecast a +2014% for 6,5”.
According to Reuters, the central bank will raise interest rates again, bringing the reference rate to 10,5%. The next meeting has been set for January 15th.
