Brazil’s central bank raised its key interest rate by one percentage point to 14.25% on Wednesday, marking a nine-year high, as it seeks to combat inflation in Latin America’s largest economy.
This was the fifth consecutive rate hike, defying the calls of leftist President Luiz Inácio Lula da Silva, who has advocated for lower rates to stimulate economic growth.
The bank’s Monetary Policy Committee cited a “challenging external environment” as well as persistent domestic inflation and signs of “incipient moderation in growth” as key reasons behind the decision.
Looking ahead, the committee indicated that another rate hike, though of a “smaller magnitude,” could occur at its next meeting in May if current conditions continue.
The last time the rate was this high was between July 2015 and October 2016, during Brazil’s economic recession.
President Lula, facing low approval ratings, argues that high interest rates stifle growth by making credit more expensive for both consumers and investors. Central banks typically raise rates to control inflation by reducing consumer and business spending, thus lowering demand.
In the past month, prices for goods and services in Brazil rose by 5.0% year-on-year, the highest since September 2023, surpassing the government’s upper inflation target.
Experts consulted by the central bank forecast that the inflation rate could close the year at 5.66%.
To address persistent food inflation, the government recently removed import tariffs on key products such as meat, coffee, sugar, oil, and corn.
Despite these economic challenges, Brazil’s unemployment rate stood at a low 6.5% between November and January, and the country is projected to see a 3.4% growth rate in 2024, marking its strongest performance since 2021.
AFP
