Brazilian Central Bank: Rise in Interest by May

As a result of the military conflict between Russia and Ukraine, the global economy is suffering a sharp shock in commodity prices. Based on that, the Monetary Policy Committee (COPOM) of Brazil’s Central Bank announced a raise Brazil’s benchmark interest rate, the Selic, by one percentage point in the coming meeting, in early May.

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COPOM agreed last Wednesday to elevate the Selic by one percentage point to 11.75 percent a year. The committee considers that the current conflict in Europe has led to a “new momentum” in global production chains, as the sanctions imposed on Russia will potentially cause “more prolonged inflationary pressures” in the production of goods.

The committee appointed that “with increases more persistent than anticipated, across several components,” consumer inflation remains elevated. According to indicators, inflation should remain “above the range compatible with meeting the target” which represents 3.5 percent, with a varied range of 1.5 percent.

“The rise in industrial goods prices has not eased up and should persist in the short term, while inflation under services has sped up even further. The recent readings came higher than expected, and the surprise came both for the more volatile components and those more closely linked to underlying inflation,” noted the COPOM.

COPOM recognized that the current situation “poses a challenge to bringing inflation close to its targets.” The committee also highlighted that it will be ready to adjust the scope of the monetary tightening cycle if the scenario deteriorates.