Update on the Brazilian economy
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Brazil’s central bank has raised interest rates for the fifth time in a row this year as it fights to control inflation, which has almost doubled.
A global commodity rally, the worst drought in nearly a century and a weak currency have contributed to sharp rise in prices for everything from food to fuel, hitting millions of people in Latin America’s largest economy.
Banco Central do Brazil, or BCB, is the most aggressive in emerging markets when it comes to tightening, as monetary policymakers around the world consider how to handle higher inflation as a result of lifting the Covid-1 restrictions.
It is in the hawk camp of inflation with Russia due to its multiple rate increase. The central banks of Mexico, Chile, Peru and South Korea have also recently raised their rates.
As many economists had predicted, the BCB continued its course with a 100 basis point increase in the benchmark celibate rate on Wednesday evening.
Its monetary policy committee, Kopom, said it expects the rate to rise again at the same level at its next meeting in October.
“Consumer inflation remains high. Rising industrial commodity prices – high input costs, supply constraints, and redistribution of demand for services per commodity – should come under pressure and short-term pressure, ”the bank said in a statement.
Rafaela Vittoria, chief economist at Banco Inter, tweeted, “With Celik, we should reach 25.25 percent by the end of 2021.”
Prior to the decision, Gustavo Aruda, an economist with BNP funding, argued that the central bank should go beyond 100 bps.
“We believe the interest rate should be increased by 150 bps at this BCB meeting. The combination of more widespread inflation and inflation expectations should give rise to more rapid action to deviate from the target.
The rate rose after annual inflation reached 9.68 percent last month, as measured by the Consumer Price Index, which is higher than the BCB’s target of 3.75 percent for 2021. 2000
According to the OECD, only Argentina and Turkey are among the G20 countries with higher inflation rates than Brazil.
Political tensions between President Zaire Bolsonaro and Supreme Court judges have impacted Brazilian realities in recent months, with financial concerns ahead of next year’s election. This translates into higher domestic prices for products quoted in dollars in the international market.
After pushing Sally to an all-time low of 2 percent this year, BCB Governor Roberto Campos has promised to do “whatever it takes” to bring Neto inflation back to target.
In a country frightened by the experience of fleeing prices, there will be a balance between controlling the supply of money and adjusting to growing demand, even if the outlook for the economy deteriorates.
Unemployment continues to rise, and analysts have steadily lowered Brazil’s GDP growth forecast to 1.6 percent in 2022, after a 5 percent expansion this year, according to a central bank survey.
As the global economy recovers from the coronavirus shutdown, supply chain disruptions and the release of paint-up demand have led to debate over whether higher stable inflation is here or a temporary phenomenon.
Environmental factors have also contributed to Brazil. Lack of rainfall in the southern and central states has reduced reservoirs on which the country depends on hydropower generation which supplies most of its electricity supply, forcing utilities to turn to more expensive thermal stations. Economists have pegged inflation at 4.1 percent the following year.
“In 2022, there will be partial control of inflation,” said Joao Lial, an economist at Rio Bravo Investments. “There has never been a series of shocks as intense as in Brazil.”
Additional report from Carolina Police