The Central Bank of Brazil announced an interest rate increase of 75 basis points, raising the benchmark interest rate to 4.25%

Brazil’s central bank announced an interest rate increase of 75 basis points on the evening of 16 local time, raising the country’s benchmark interest rate from the current 3.5% to 4.25%. This is the third consecutive interest rate increase by the Central Bank of Brazil this year, which is in line with market expectations.
Since the beginning of this year, the Central Bank of Brazil has entered the channel of interest rate increase due to the continuous growth of inflation rate in Brazil. On March 17 this year, the Brazilian central bank raised the benchmark interest rate, which has been maintained for six years, from 2% to 2.75%, exceeding the expectation of the Brazilian financial market at that time. On May 5, the Central Bank of Brazil raised interest rates by another 75 basis points, raising the benchmark interest rate to 3.5%.
Brazil’s central bank said in a statement on the 16th that at present, the inflation pressure in Brazil is greater than expected. In particular, the prices of industrial products and energy are rising sharply, increasing the inflation risk of the whole year. The interest rate hike aims to curb inflation expectations that further exceed the government’s control targets this year and next year.
It is understood that the adjustment of the benchmark interest rate by the Central Bank of Brazil aims to keep the inflation rate within the management target. The median inflation management target set by Brazil’s national monetary Committee for this year is 3.75%, allowing 1.5 percentage points up and down. According to the latest expectation of Brazil’s financial market, Brazil’s inflation rate will be 5.82% this year, higher than the 5.25% upper limit of the government’s control target.
Brazil’s inflation rate hit a 25 year high of 0.83% in May, according to the Bureau of geographical Statistics (IBGE). In the year to may, Brazil’s inflation rate was 8.06%, more than twice the median of the government’s control target.
Brazil’s financial market believes that at the next interest rate meeting to be held from August 3 to 4 this year, the Brazilian Central Bank may raise interest rates by another 75 basis points to raise the benchmark interest rate to 5%. Brazil’s benchmark interest rate is expected to rise to 6.25% by the end of this year.

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