(Bloomberg) — Brazil’s central bank increased its benchmark interest rate by a quarter-point in the first hike since 2022, as a jump in consumption and above-target inflation expectations forced policymakers to move in the opposite direction of the Federal Reserve and regional peers.
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Policymakers raised the benchmark Selic to 10.75% late Wednesday in an unanimous vote. The decision was expected by 31 of 35 economists in a Bloomberg survey. Two others forecast a bolder, half-point hike, and the remaining two estimated no change.
The bank refrained from providing specific guidance about its next moves.
“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,” policymakers wrote in a statement accompanying their decision.
The central bank led by led by Roberto Campos Neto became the first to increase borrowing costs in Latin America, after halting its easing cycle in June and strucking a tougher tone on inflation in the following months. Higher public spending and a tight labor market are underpinning both consumption and price pressures. Analysts see cost-of-living rises at least half-point above the bank’s 3% target through 2027.
“When you sum it all together, there’s a clear need for higher rates in Brazil,” Fernando Goncalves, an economist at Itau Unibanco, said before today’s decision. “A rate hike does the right thing, which is to control inflation pressures.”
Brazil’s decision came hours after the Federal Reserve lowered its benchmark interest rate by a half percentage point in an aggressive start to a policy shift aimed at bolstering the US labor market.
Brazil’s gross domestic product expanded more than estimated by all economists in the second quarter, a strong sign that activity is holding up despite high borrowing costs. President Luiz Inacio Lula da Silva’s fiscal policies are boosting family spending as income levels rise and unemployment remains low.
Last month, Lula nominated Monetary Policy Director Gabriel Galipolo as the next central bank governor, and his Senate hearing is scheduled for Oct. 8. In recent weeks, Galipolo said a rate hike is being considered by the bank’s board, which will do whatver is needed to bring inflation back to target.
–With assistance from Giovanna Serafim.
(Updates with detail from central bank statement in third and fourth paragraphs.)
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