Brazil Central Bank Raises Benchmark Selic Interest Rate to 3.5%

SÃO PAULO--Brazil's central bank raised its benchmark lending rate as policy makers work to counteract inflation amid high commodities prices and a weakened real, and signaled another rate increase of the same size at its next meeting in June.

The bank on Wednesday raised its benchmark Selic rate by 75 basis points to 3.5%, as expected, after an increase of the same size at its meeting in March lifted the rate from its record low of 2%. The monetary policy committee said that more rate increases are needed, but that the economy is still in need of monetary stimulus.

"A partial normalization of the policy rate remains appropriate to keep some degree of monetary stimulus during the economic recovery," the bank said in its statement, while adding that its policy can still be adjusted based on any changes to the outlook for inflation.

Consumer prices began to rise rapidly toward the end of last year as food prices spiked. The weakening Brazilian real and rising prices for commodities on world markets, including oil, have continued to add inflationary pressure in 2021. Higher fuel prices pushed the 12-month inflation rate above the 3.75% center point of the central bank's target for this year.

The central bank's rate increase in March was expected, but it was bigger than markets had predicted, and policy makers said at the March meeting that they expected to raise the Selic by another 75 basis points at Wednesday's meeting. With inflationary pressures showing recent signs of easing, though, the bank should be able to relax the pace of future rate increases if that trend continues, some economists say.

"Inflation will moderate once the temporary commodity price shock is over," said Étore Sanchez, chief economist at Ativa Investimentos, adding that the fragile economy still calls for interest rates at levels that boost growth. " They shouldn't remove all the stimulus in this cycle of rate increases."

Write to Jeffrey T. Lewis at jeffrey.lewis@wsj.com


  (END) Dow Jones Newswires
  05-05-21 1813ET
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