220616 Brazil
A worker uses a petrol pump at a Brazilian oil company Petrobras gas station in Brasilia, Brazil March 7, 2022. Image Credit: Reuters

Brasilia: Brazil’s central bank on Wednesday raised interest rates by 50 basis points, in line with prevailing market expectations, and signalled an upcoming increase of the same size or smaller, extending an aggressive tightening cycle.

The bank’s rate-setting committee, known as Copom, raised its benchmark Selic interest rate to 13.25 per cent, the highest level since the beginning of 2017 and up sharply from a record low of 2 per cent in March 2021. A Reuters poll last week found 25 of 30 economists expected the 50-basis-point increase.

Still, there were doubts about whether policymakers would continue with a 12th straight increase in August, adding to the world’s biggest current rate-hiking cycle among major economies.

“For its next meeting, the Committee foresees a new adjustment, of the same or lower magnitude,” Copom wrote in its decision statement.

Policymakers added that Brazilian economic indicators since their meeting last month showed stronger economic growth than they expected, while inflation data was worse than anticipated.

Brazil’s consumer prices rose 11.7 per cent in the 12 months until May, with persistent and widespread inflationary pressure throughout the Brazilian economy affecting expectations for next year.