Brazil hikes interest rates, reports third big hike next month

BRASILIA, Sept.22 (Reuters) – Brazil’s central bank on Wednesday raised interest rates by 100 basis points and announced a third consecutive hike of this magnitude in October as it battles soaring inflation with the most aggressive monetary tightening in the world.

The bank’s rate-setting committee, known as Copom, has unanimously decided to raise its benchmark rate to 6.25% as expected by most economists in a Reuters poll.

The move puts Brazil at the forefront of a global battle against rising consumer prices, raising its benchmark rate from a record 2.00% at the start of the year as inflation over 12 month flirts with the double digits.

Copom described in its accompanying statement its intention to “take the monetary tightening process further into restrictive territory” with another percentage point rate hike next month.

“This pace (of rate hikes) is most appropriate to ensure the convergence of inflation towards the target over the relevant horizon and, at the same time, allow the Committee to obtain more information on the state of the economy and the persistence of shocks, ”the policymakers wrote in their statement.

The weakening currency and doubts about Brazil’s fiscal outlook forced the central bank to take a hard-line approach, many economists say. Rising expectations of a rate hike next year by the US Federal Reserve have added to the pressure on emerging markets. Read more

Although 25 of 35 economists polled by Reuters predicted a 100 basis point increase on Wednesday, nine predicted an even more aggressive rate hike.

“I think the central bank was only mildly hawkish. I expected more,” said economist Joao Leal of Rio Bravo Investimentos in Sao Paulo.

However, some warn that the brutal tightening in Brazil will stifle an economic rebound in Latin America’s largest economy, killing growth and encouraging more populist policies from President Jair Bolsonaro as he seeks re-election in 2022. read the full story following

Report by Marcela Ayres; Additional reporting by Jose de Castro in Sao Paulo; Writing by Brad Haynes; Editing by Stephen Eisenhammer and Richard Pullin

Our standards: Thomson Reuters Trust Principles.

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