Brazil to fight inflation, a breath of 3 yards of interest rate increases

Brazil’s central bank on the 17th to start the cycle of interest rate increases, a breath of 3 yards to 2.75%, the first Time in nearly six years, and the rate of increase is the largest in more than a decade, higher than economists expected, but also hinted that interest rates may rise again in May, reflecting the eagerness of policy officials to control the level of Inflation has been higher than the target.

Brazil’s central bank monetary policy committee (Copom) said the rate increase symbolizes the first step toward “partial normalization” of monetary policy, the central bank also based on market interest rates and exchange rate forecasts, the end of this year, the inflation rate will rise to 5%, approaching the central bank’s target range of 5.25% ceiling. Brazil’s annual inflation rate in February has risen to a four-year high of 5.2%, well above the central bank’s target of 3.75% by the end of the year.

Copom said: “At the next decision meeting (May), unless there is a significant change in the outlook for inflation or a major change in the balance of risks, the Committee expects that the progress of partial normalization of policy will continue, raising interest rates again, with the same force as this time”.

Economists pointed out that the latest decision of the Central Bank of Brazil, showing that officials have doubts about the risk of rising inflation, higher than the risk of growth decline, and hinted that interest rates will rise again in May, but also to suppress the market for the wave of interest rate cycle duration, and the rate of interest rate increases are expected; the central bank decisively terminated ultra-low interest rates, may help curb inflation and provide support for the economy.

Luciano, chief strategist at Mizuho Bank in Sao Paulo, said, “A sharp increase in interest rates in the early stages of policy normalization could stabilize financial markets with greater force and speed, support the lire exchange rate and minimize the risk of inflation at the end of the year.”

Brazil’s economy is in a fragile period, with the second wave of the new crown Epidemic raging, resulting in the second highest number of infections and deaths after the United States, and the economy is expected to shrink in the first quarter; a few months ago, Brazil’s central bank still promised to maintain borrowing costs at 2% in the “foreseeable future”; however, officials have changed their tune in January, and agreed at this month’s meeting A significant increase in interest rates.