Brazil’s central bank will keep rates next week after inflation topped 5.3%
Brazil’s inflation continued to exceed the central bank’s target range in its mid-July reading, according to official data released on Friday. Policymakers are set to convene next week for a meeting where they are largely anticipated to maintain interest rates at a two-decade high.
Inflation in Latin America’s largest economy reached 5.30% in the 12 months leading up to mid-July, according to the statistics agency IBGE. This marks an increase from 5.27% the previous month and is slightly above the 5.26% anticipated by economists in a Reuters poll.
The central bank of Brazil aims for an inflation rate of 3%, with a permissible variation of 1.5 percentage points, and the policymakers have committed to restoring it to that target level.
The bank implemented 450 basis points in interest rate increases from September to June, raising the benchmark Selic rate to 15%, the highest level since July 2006. It indicated last month a “very prolonged” pause to evaluate the impacts of the increases.
“The mid-month inflation figures provide policymakers with no justification for contemplating another rate increase,” stated Kimberley Sperrfechter, an emerging markets economist at Capital Economics, who anticipates that conditions will permit rate cuts by the end of the year.
The committee responsible for setting rates at the central bank, referred to as Copom, is set to convene on July 29 and 30.
In the month leading up to mid-July, consumer prices, as indicated by the IPCA-15 index, increased by 0.33%, a rise from the 0.26% recorded in the prior month. The index was anticipated to increase by 0.30%, based on the median forecast from a Reuters poll.
The monthly rise was attributed to escalating housing expenses as electricity rates surged, according to IBGE, along with increased transportation costs, particularly a spike in airfares. Food and beverage prices, which have been closely monitored, decreased for the second consecutive month.
“The outcome of today will not affect Copom’s decision,” stated Inter senior economist Andre Valerio. “The decision should be to maintain interest rates at their current levels, reinforce the dedication to achieving the inflation target, and provide no hints regarding the potential start of a rate-cutting cycle.”
