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Investing.com -- Brazil’s central bank raised its benchmark Selic interest rate by 25 basis points to 15.00% on Wednesday, marking a continued effort to combat persistent inflation in Latin America’s largest economy.
The decision, made unanimously by the central bank’s monetary policy committee (Copom), brings the cumulative increase to 450 basis points since September 2023, according to Capital Economics. The firm noted it was among the minority of analysts to correctly predict the latest hike.
Recent economic data likely influenced the decision, as Brazil’s economy grew by 1.4% quarter-over-quarter in Q1, supported by robust domestic demand amid a tight labor market. While May’s IPCA data showed headline inflation edged down to 5.3% year-over-year, this remains well above the central bank’s 3% target, with core services inflation rising to 6.8% year-over-year—the highest since mid-2023.
In its accompanying statement, Copom indicated the tightening cycle may be nearing completion, stating that "if the expected scenario materialises, the Committee foresees an interruption of the rate hiking cycle." The bank maintained a hawkish stance, however, emphasizing it would evaluate whether the current interest rate level, if maintained for "a very prolonged period," would sufficiently control inflation.
The central bank also warned it "will not hesitate to proceed with the rate hiking cycle if appropriate," signaling concerns that ending the tightening cycle might prompt investors to prematurely anticipate rate cuts, potentially loosening financial conditions before inflation is fully contained.
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