Brasilia, Dec. 18 Brazil's Central Bank indicated in minutes from its latest Monetary Policy Committee (Copom) meeting, released on Tuesday, that it anticipates two additional increases to the Selic benchmark interest rate at the start of 2025.
The Central Bank cited the depreciation of the Brazilian real against the US dollar, which recently surpassed 6 reals per dollar, as well as negative market sentiment surrounding the government's proposed fiscal package. These factors have significantly impacted both prices and future interest rate expectations.
At last week's meeting, Copom raised the Selic rate by one percentage point to 12.25 per cent annually, marking the third consecutive hike, Xinhua news agency reported.
The bank emphasised that the worsening economic outlook requires a tighter monetary policy, driven by the exchange rate's depreciation and concerns over achieving inflation targets.
Copom will closely monitor how the real's devaluation and financial conditions influence prices and economic activity going forward.
The Central Bank highlighted that its decisions focus on inflation projections rather than current data, as changes to the Selic rate typically take six to 18 months to impact the economy.
Brazil is targeting an inflation rate of 3.0 per cent, with an allowable range between 1.5 per cent and 4.5 per cent.
On the global front, the Central Bank noted that external conditions remain "challenging," particularly amid economic uncertainty in the United States and potential fallout from protectionist policies under incoming US President Donald Trump, which could impact exchange rates and interest rates.
Last Friday, Brazil's Central Bank had revealed that economic activity grew by 3.4 per cent over the past 12 months through October.
The bank's Economic Activity Index (IBC-Br) edged up 0.1 per cent in October from the previous month on a seasonally adjusted basis, marking the fourth consecutive month of growth.
The IBC-Br index, considered a preview of the GDP, also serves as a reference for the central bank's Monetary Policy Committee to adjust basic interest rates.
The committee has recently raised the benchmark Selic interest rate to 12.25 per cent, continuing its recent hikes aimed at controlling inflation.
Inflation reached 4.87 per cent for the 12 months ending November, exceeding the central bank's official target of 3 per cent, with a margin of error at 1.5 percentage points.
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