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Brazil's central bank keeps rates unchanged after 12 consecutive rate hikes - Financial Markets Worldwide

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Economy1 hour ago (Sep 21, 2022 07 36pm EST)

© Reuters. People walk in front of the Central Bank headquarters building in Brasilia, Brazil, on March 22, 2022. REUTERS/Adriano Machado Brazil central bank holds interest rates after 12 straight increases

Marcela Ayres

BRASILIA (Reuters) – Brazil’s central bank opted to keep interest rates unchanged on Wednesday, suspending aggressive monetary tightening cycle, although policymakers in the U.S. and Europe are still racing to catch up with inflation.

The Bank Rate Setting Committee, or Copom, voted 7-2 to keep the benchmark Selic rate at 13.75% after 12 consecutive hikes, as polled by Reuters 24 out of 32 economists expected it.

At this point, policymakers may have ended the most aggressive rate hike cycle in the world, raising the Selic rate from a record low of 2% in March 2021 and allowing Brazil The latest rate hikes are ahead of many nascent central banks.

The Federal Reserve raised interest rates sharply for the third time in a row on Wednesday and again this year.

Brazil’s central bank decided to stop raising interest rates after consumer prices fell for a second straight month in August, helped by fuel and energy tax cuts.

Still a split decision for Copom, two committee members voted to raise “residual” rates by 25 basis points, underscoring lingering concerns about inflation, just as A few months ago, inflation in Brazil hit a nearly 20-year high.

“The Committee emphasized that future monetary policy steps are subject to adjustment and will not hesitate to resume a tightening cycle if the de-inflation process does not proceed as expected,” policymakers said in a statement. The decision reads

Banco Fator Chief Economist José Francisco Gonçalves said that despite a majority of committee members voting to maintain rates No change, but their statement left the door open for a resumption of rate hikes, a clear message about vigilance against price pressures.

“The hawkish message has somewhat replaced our expected 25 basis point gain,” he said.

In a note to clients, he predicted that the yield curve should adjust on Thursday to reflect that interest rates only begin to decline in the fourth quarter of 2023.

Others are betting that the central bank will ease policy soon, including Economy Minister Paul Guedes, who predicts a rate cut in early 2023.

However, central bank directors have taken a more stern tone in their recent public comments, emphasizing that it is too early to start talking about lowering interest rates, as the fight against inflation is not over.

Copom’s 2023 inflation forecast was unchanged from last month at 4.6% in Wednesday’s statement, and its 2024 inflation forecast rose to 2.8 from 2.7% earlier %, compared to the official target of 3%.

Brazil’s 12-month inflation hit double digits in September-July 2021, driven by a post-pandemic rebound in service demand and Impact of post-war surge in food and fuel prices

The central bank’s inflation forecast for this year fell to 5.8% from 6.8% last month, still well above its 3.5% target, tolerance 1.5 percentage points

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