Brazil’s central bank kept its key interest rate steady at a near two-decade high, signaling its continued commitment to combating persistent inflation. Led by Gabriel Galipolo, the board held the benchmark Selic rate at 15% for the third consecutive meeting, in line with forecasts from all economists surveyed by Bloomberg. The central bank had previously lifted borrowing costs by a total of 4.5 percentage points between September of last year and June. Inflation shows signs of easing, but challenges remain The central bank is making gradual progress in taming prices in Latin America’s largest economy, but inflation is expected to stay above the 3% target through 2028. Record-low levels of unemployment and mounting concerns about Brazil’s shaky public finances are clouding the outlook, forcing policymakers to remain vigilant. The central bank is slowly curbing inflation in Latin America’s largest economy, but prices are projected to remain above the 3% target through 2028. With unemployment at record lows and growing worries over Brazil’s fragile public finances, policymakers are staying cautious. Mario Mesquita, chief economist at Itaú Unibanco Holding SA, wrote in a research note before the meeting that the decision shows “the combination of a cautious stance in the face of a still uncertain external environment and the assessment that the lagged effects of monetary policy are still unfolding.” High interest rates are dampening economic activity while supporting the Brazilian real. Consumer prices have eased in recent weeks, with Brazilians benefiting from lower food costs. Still, President Luiz Inacio Lula da Silva is advancing social spending ahead of next year’s general election. The outlays have investors fretting over the path and sustainability of the government’s debt load despite government promises to run a primary fiscal surplus, which excludes interest payments. Brazil’s inflation edges up in September despite falling food prices Latin America’s largest economy’s inflation had initially resumed growth in September, despite the continuous easing in food prices, according to data from the statistics agency IBGE. Consumer prices in Brazil rose 0.48% in September, up from a 0.11% drop in August, the agency said. The result came in slightly below the 0.52% expansion forecast by economists in a poll. The food and beverage group, the largest component in the inflation basket, decreased by 0.26% in September, marking the fourth consecutive decline, according to the IBGE. “The household food group continues to show negative variations, given the greater supply of products,” IBGE research manager Fernando Goncalves said in a statement. Consumer prices rose 5.17% year-on-year (YoY) in September, up from 5.13% YoY in August. Brazil’s central bank targets an inflation rate of 3%, with a tolerance band of 1.5 percentage points in either direction. “The overall picture remains benign. September’s mild rebound mainly reflects base effects, while forward-looking indicators point to continued disinflation in the months ahead,” Pantheon Macroeconomics’ chief Latin America economist Andres Abadia said. On related development, President Luiz Inácio Lula da Silva’s government secured a major victory after senators approved a bill to exempt tens of millions of middle-class Brazilians from income tax. The bill raises the threshold for paying income tax to 5,000 reais ($930) per month, from 3,036 reais, providing households with more disposable income. Economists say the move could stimulate consumer spending, helping to buoy the economy at a time when already high interest rates are holding growth in check. Inflation is beginning to cool, but it remains above target, and Brazil’s central bank is indicating that high interest rates are here to stay. Policymakers are being cautious, weighing the need to cool off prices against record-low unemployment and rising fiscal risks as the country heads into an election year. Get seen where it counts. Advertise in Cryptopolitan Research and reach crypto’s sharpest investors and builders.
