By Jeffrey T. Lewis and Paulo Trevisani
SÃO PAULO--The Central Bank of Brazil raised its benchmark lending rate by 1.5 percentage points as inflation continues to climb amid growing concern about government spending.
The bank's monetary policy committee on Wednesday increased the Selic rate to 7.75% from 6.25%. It was the sixth consecutive meeting at which the bank raised the Selic, which started the year at a record-low 2%, and an acceleration from the 1-percentage-point increases at the previous two meetings.
The decision by the bank's monetary policy committee was unanimous. The committee said in its statement that it expects to raise the Selic by the same amount at its next meeting, in December.
"Given the deterioration of the balance of risks and the increase in its inflation projections, this pace is the most appropriate to guarantee inflation convergence to the targets at the relevant horizon," the statement read. The committee's "baseline scenario and balance of risks indicate as appropriate to advance the process of monetary tightening even further into the restrictive territory."
The central bank picked up the pace of its rate hikes after inflation accelerated since its meeting in September, and after the government of President Jair Bolsonaro last week said it plans to boost social spending and account for some of the increase outside of a constitutionally imposed spending cap. The move by the administration weakens markets' confidence in the government's will and ability to get spending under control, according to economists.
"Even if the fiscal impact next year is limited in the big scheme of things, what causes concern is the fact that you undermine the credibility of the spending cap if you change it when it's politically convenient," said Roberto Secemski, an economist at Barclays in New York.
Write to Jeffrey T. Lewis at jeffrey.lewis@wsj.com
(END) Dow Jones Newswires
10-27-21 1808ET
