World Economy

Brazil CB Signals Rate Hike Again

Brazil CB Signals Rate Hike AgainBrazil CB Signals Rate Hike Again

Brazil’s central bank will take the necessary measures to bring inflation back to the official target in 2017, signaling it could raise interest rates again, even with the economy in its deepest recession in a generation.

Policymakers said in the minutes of the central bank’s last rate-setting meeting that they would also aim to lower inflation closer to the center of the official target range of between 2.5% and 6.5% next year, Reuters reported.

In a rare split vote, the central bank’s monetary policy committee, known as Copom, decided last week to keep its benchmark Selic (basic interest tax) rate at 14.25% for the third straight meeting. Two of the Copom’s eight members voted to raise the Selic to 14.75%.

Another rate hike would add pressure to President Dilma Rousseff who is scrambling to jumpstart a moribund economy and is now facing impeachment proceedings in congress.

The central bank is also under the gun to slash inflation that surged above 10% to its highest in 12 years despite leading, until recently, one of the world’s most aggressive monetary-tightening cycles.

“If inflation expectations deteriorate further they will hike in the next meeting,” said Cristian Maggio, analyst with TD Securities in London. “If they decide to hike, it will be a one-off adjustment, one of two at the most due to the prior aggressive tightening cycle.”