Brazil’s central bank raised its key interest rate for a sixth time, extending the world’s biggest tightening cycle as a weaker currency and widening budget deficit spur inflation pressures.
On Wednesday, the bank’s board voted 8-0 to raise the Special Clearance and Escrow System (SELIC) rate to 10 percent from 9.5 percent, as forecast by 50 of the 52 economists surveyed by Bloomberg.
The decision sought to “give continuation to the adjustment of the benchmark rate that began in the April 2013 meeting,” policymakers said in their statement posted on the central bank’s Web site.
Board members removed from the statement a phrase used after the previous decision, saying the increase would ensure inflation’s continued slowing next year.
Brazil’s central bank has raised borrowing costs by 275 basis points since April as the real dropped the most among major currencies and deteriorating fiscal accounts sparked concern of a credit downgrade.
Investor pessimism on Brazil’s economy means there is no room to let up on inflation, said Enestor dos Santos, principal economist at Banco Bilbao Vizcaya Argentaria and the top SELIC forecaster according to data compiled by Bloomberg.
“The burden is on the central bank’s shoulders,” Dos Santos said by telephone before Wednesday’s decision. “The central bank is fighting to regain lost credibility. Inflation expectations for next year remain elevated.”
Price increases in the 12 months through the middle of this month rose 5.78 percent, quickening from the previous month for the first time since mid-June, the national statistics agency said on Tuesday last week. Annual inflation has remained above the central bank’s 4.5 percent target for more than three years.
Policymakers have lifted borrowing costs by 50 basis points in each of the past five meetings, following a quarter-point increase in April. That totals 1 percentage point more than Indonesia and 2.25 percentage points more than Pakistan, the only other countries among 49 economies tracked by Bloomberg that have raised key rates this year.
Brazil’s consumer prices will ease below last year’s 5.84 percent while continuing to slow next year, Central Bank of Brazil Governor Alexandre Tombini told reporters in Washington on Oct. 11.
Policymakers are committed to their inflation target, Tombini added.
Analysts tracking Brazil’s economy are less optimistic. They predict inflation will accelerate to 5.92 percent next year from 5.82 percent this year, according to a central bank survey published on Monday.
Economists in the survey also forecast that growth would slow to 2.1 percent from 2.5 percent this year.
Third-quarter growth will contract 0.3 percent from the previous three months, when the economy expanded by the fastest pace since 2010, according to 23 economists surveyed by Bloomberg.
The national statistics agency is due to publish the official figure on Tuesday next week.
Inflation levels continue to hurt investment and personal consumption, said Newton Rosa, chief economist at Sul America Investimentos.
Both Brazil’s retail sales and industrial production in September rose less than economists forecast. Total economic activity in September surprised analysts by contracting.