Thursday, August 29, 2013

Brazil Raises Rates 50 Basis Points

From Bloomberg:

Brazil’s central bank raised the key rate by half a percentage point for a third straight meeting, as a plunge in the currency undermines efforts to slow inflation in the world’s second-largest emerging market. 

The bank’s board, led by President Alexandre Tombini, today unanimously voted to raise the benchmark Selic rate to 9 percent from 8.5 percent, as forecast by 50 of 52 economists surveyed by Bloomberg. One economist expected a 75 basis-point increase, while one forecast a 25 basis-point boost.
“The committee considers that this decision will contribute to put inflation on a decline and assure that this trend will persist next year,” policy makers said, according to their statement posted on the central bank’s website. The statement was virtually identical to their July 10 communique. 

The central bank is in a very unenviable spot: growth is slowing but inflation is still at uncomfortable levels.  This indicates that the real's drop and the accompanying rise in inflation is seen as the larger threat to the economy.

For more on Brazil, see links here, here and here.