Brazil’s Central Bank Backs Higher Key Rate to Anchor Prices

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Brazil’s central bank said an extension of its aggressive tightening cycle with another interest rate hike in August is needed to assure that high inflation forecasts will fall back around their target, Bloomberg News reported. Policy makers discussed signaling a steady interest rate for a “sufficiently long” period but concluded another hike would still be needed, according to the minutes of their June 14-15 meeting, when the board raised borrowing costs to 13.25%. Another lift of 50 basis points or less to the benchmark Selic is appropriate to bring consumer price estimates near their goal, they wrote. "Given the persistence of the recent shocks, the Committee evaluated that only the perspective of maintaining the Selic rate for a sufficiently long period would not assure, at this moment, the convergence of inflation around the target in the relevant horizon,” they wrote in the minutes published Tuesday. “The strategy of convergence around the target requires a more contractionary interest rate than that used in the reference scenario for the entire relevant horizon,” they wrote. Policy makers led by Roberto Campos Neto are battling persistent energy and food shocks which have kept annual inflation above 10% since September. Though headline figures eased in May, price pressures remain widespread. In the minutes, the bank said recent cost of living readings “were higher than expected” with surprises in both volatile and core components. Read more.
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