By Jeffrey T. Lewis and Paulo Trevisani
SÃO PAULO--Brazil's central bank raised its benchmark lending rate by a full percentage point, picking up the pace of its increases after inflation accelerated and the economy showed unexpected strength, and said it expects to increase it by the same amount at its next meeting.
The bank raised the rate, known as the Selic, to 5.25% on Wednesday from 4.25%, the fourth increase in as many policy meetings. The Selic started the year at a record low of 2%, and the bank raised it by three-quarters of a percentage point at each of the previous three meetings.
The bank's monetary policy committee, known as the Copom, said it expects to raise the Selic by another point at its next meeting and indicated more rate increases after that.
"At this moment, the Copom's baseline scenario and balance of risk indicate as appropriate a tightening cycle of the policy rate to a level above the neutral," the statement said. "For the next meeting, the Committee foresees another adjustment of the same magnitude."
Earlier this year, the central bank said it planned to raise the Selic to help control prices, but that eventually it expected to leave the rate at a level that would help boost the economy. As economic activity has rebounded faster than expected in recent months, the bank then changed its message to say it would be appropriate to raise the rate to a neutral level.
It's new message, that the rate should finish the current cycle above the neutral level, makes sense under the current circumstances, according to Rachel de Sá, chief economist at São Paulo-based brokerage Rico. Ms. de Sá said the neutral level for the Selic is around 6.5%.
"It's clear the recovery is solid, and though that doesn't mean Brazil's economy will take off in coming years, it does mean we've returned to where we were before the pandemic, so the Selic doesn't need to be stimulative," Ms. de Sá said.
Write to Jeffrey T. Lewis at jeffrey.lewis@wsj.com
(END) Dow Jones Newswires
08-04-21 1839ET
