In a decision widely expected by financial markets, the Central Bank’s Monetary Policy Committee (Copom) raised the base interest rate of the economy 0.5 percentage point to 9.5% from 9%. And it has indicated that monetary tightening started in April will continue at its next meeting in November.
Copom decided unanimously to raise the Selic rate to 9.50% per year, without bias. The Copom considers that this decision will contribute to bringing inflation down and ensure that this trend will continue next year."
Copom has one more meeting in 2013, scheduled for November 26 and 27. With the same statement, it is possible that the market will move towards a consensus that the Selic can indeed achieve and even exceed double digits, since the wording is associated with 0.5 percentage-point hikes.
Currently there is disagreement among economic analysts and market operators about the possibility of the base interest rate, which in April was at a record low of 7.25%, rise back to double digits.
Some of them believe that, with the signs of economic slowdown and lower inflation rates reported recently, the Central Bank (BC) can finish its job in November with an increase of 0.25 percentage point, which would raise the Selic rate to 9.75%.
But some believe that, to tame inflation and bring it closer to the center of the target of 4.5%, interest rates must rise to 10% or more.
Recent statements by BC Economic Policy director Carlos Hamilton Araújo have reinforced the market’s conviction that the Copom may go beyond 9.75%, the "magic number " that seemed to have been consolidated within the market as a "ceiling" for the current adjustment cycle.
Source: Valor International
