Brazil central bank raises benchmark interest rate to 15%
Brazilian President Luiz Inacio Lula da Silva arrives in Calgary, Alberta, Monday, June 16, 2025. He attended the G7 Leaders meeting in Kananaskis, Alberta. (Jeff McIntosh/The Canadian Press via AP)
BRASILIA, Brazil — Brazil’s central bank on Wednesday raised its benchmark interest rate by 0.25 points to 15 percent. This is its seventh straight hike in nine months of trying to curb inflation.
The rate, known as the Selic, is at its highest level since 2006. It is one of the highest in the world.
The unanimous decision by the bank’s monetary policy committee to further increase the rate caught markets off guard.
Many analysts had said they expected a pause in the cycle of rate hikes, given a slowdown in inflation.
“The external environment remains adverse and particularly uncertain due to the economic situation and policy in the United States,” the committee argued.
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The bank also cited “heightened geopolitical tension,” slowing Brazilian growth and inflation still running well above target.
Annual inflation in 2025 is forecast to reach 5.2 percent before falling to 4.5 percent in 2026.
The successive rate increases have angered left-wing President Luiz Inacio Lula da Silva. He argues that high interest rates stifle growth.
The Selic has steadily increased from 10.5 percent in July 2024.
Earlier this month, Lula pointed to falling food prices in expressing hopes that the central bank would “soon take the correct action of starting to lower rates.”
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In 2024, Brazil battled an historic drought and severe floods. These affected the agricultural sector and drove up food prices, severely undermining Lula’s popularity.
However, inflation showed its first signs of slowing in May, reaching 5.32 percent year-on-year after three consecutive accelerations.
The rise in food costs slowed last month.
The government and the central bank target an upper inflation limit of 4.5 percent.
On several measures, Latin America’s biggest economy has posted progress.
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Unemployment fell to 6.6 percent in the February-April quarter, the lowest figure for this period since 2012.
Gross domestic product grew 3.4 percent in 2024, the strongest increase since 2021. It grew 1.4 percent in the first quarter of this year mainly due to a rebound in the agricultural sector.
Experts and financial institutions consulted for the Central Bank’s Focus bulletin predicted inflation will close the year out at 5.25 percent.
The monetary policy committee said it might interrupt the cycle of rate hikes at its next meeting in July. This is to “examine the accumulated impacts of the adjustment already made” and evaluate whether the current rate is sufficient to steer inflation toward the target.
The US Federal Reserve on Wednesday kept interest rates steady.
