Brazil in fourth interest rate rise
São Paulo, Brazil (FT) — Brazil’s central bank has increased rates for the fourth time this year to curb a rise in inflation amid tight labor market conditions.
The central bank on Wednesday evening boosted the benchmark Selic interest rate by 25 basis points to 12.25 per cent and maintained its strategy of a “prolonged” adjustment to deal with an inflation rate that has exceeded the upper limit of the official target range of 6.5 per cent.
“The committee believes that implementing monetary policy adjustments for a period that is sufficiently prolonged continues to be the most adequate strategy to guarantee the convergence of inflation to the target in 2012,” the central bank’s monetary policy committee said in a statement.
The move maintains Brazil’s position as the country with the highest real interest rates in the world of any large economy.
But while the central bank remains hawkish, the trend in the near term is for a softening of inflation in Brazil.
Although the annual inflation rate reached 6.55 per cent in May compared with a year earlier, month-on-month inflation during the period decelerated to 0.47 percent compared with 0.77 per cent in April.
This easing of price pressures has been helped by lower fuel costs and a 4.6 percent appreciation in the real, Brazil’s currency, against the dollar over the past three months that has made imported consumer goods cheaper.
But the labor market remains tight amid low unemployment. There are also concerns that unions will push for aggressive wage hikes later this year that could make it difficult for the central bank to ensure inflation converges to the target next year.
© The Financial Times Limited 2011
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