By Jeffrey T. Lewis and Paulo Trevisani
SÃO PAULO--Brazil's central bank raised its benchmark lending rate by 1.5 percentage points to 9.25% and signaled another increase of the same size at its next meeting in February as consumer prices continue their rapid rise.
The move Wednesday by the bank's monetary policy committee, known as the Copom, marked the seventh consecutive meeting at which it raised the key Selic rate. The Selic, which was at a record low 2% in March, is at its highest level in more than four years.
"The committee considers that, given the increase in its inflation projections and in the risk of a deanchoring of long-term expectations, it is appropriate to advance the process of monetary tightening significantly into the restrictive territory," the bank said in its statement. "The committee will persist in its strategy until the disinflation process and the expectation anchoring around its targets consolidate."
The central bank faces the complicated task of trying to slow galloping price increases, and tame inflation expectations, just as Brazil's economy has begun to struggle following a post-lockdown recovery. Consumer prices jumped 10.67% in October from a year earlier, further reducing people's purchasing power amid high unemployment and the global logistics problems that are hitting manufacturers around the world.
"The Copom is in a tough spot. It has to deal with the ongoing inflation shocks and their adverse effects on expectations, and at the same time, we have more evidence that the cyclical recovery is behind us," said Roberto Secemski, an economist at Barclays in New York.
Brazil's 12-month inflation rate reached the highest level in almost six years last month as the country's weak currency pushed import prices higher and exacerbated the impact of rising oil prices on the cost of fuel. A yearlong drought has also contributed to higher food prices and a rise in electric rates as power companies haven't been able to generate as much cheap hydroelectric energy.
Write to Jeffrey T. Lewis at jeffrey.lewis@wsj.com
(END) Dow Jones Newswires
12-08-21 1711ET
