BRASILIA (Reuters) – Brazil’s central bank discussed raising interest rates last week by more than 75 basis points, minutes from its last policy meeting showed on Tuesday, raising the chances of a more aggressive hike at its next meeting to keep inflation in check.
The minutes of the June 15-16 meeting, where the bank’s rate-setting committee known as Copom raised rates to 4.25%, showed policymakers believe a full normalization of policy is now appropriate, shifting up a gear from a more cautious “partial” approach in recent meetings.
“The Committee evaluated a quicker reduction of monetary stimulus already on this meeting,” the minutes read.
“The Committee decided that the best strategy would be to maintain the current pace of stimulus reduction but highlighting the possibility of a quicker adjustment in the next meeting.”
The 75-basis point increase in the central bank’s benchmark Selic rate last week was the third consecutive hike of that magnitude, as Copom seeks to prevent current inflationary pressures from lifting 2022 expectations beyond target.
The central bank’s 2022 inflation target is 3.50%. Copom last week said its baseline scenario currently points to 12-month inflation of 3.5% by the end of next year. But many economists reckon inflation next year will be closer to 4.00%.
Annual inflation is currently running at more than 8%. Copom’s own estimates point to it ending this year 5.8%, well above its goal of 3.75% and even the 5.25% upper limit of its target range.
The minutes show policymakers wanted to have the flexibility to adjust policy at a faster rate if needed, because the persistence of inflationary pressure has been “more intense than expected” despite the recent exchange rate appreciation that has seen the dollar fall to around 5.00 reais.
Copom members said a return to the so-called neutral level of interest in Brazil, when the economy runs at full employment and potential growth without fueling inflation, “has become appropriate”.
(Reporting by Jamie McGeever; Editing by Andrew Heavens and Raissa Kasolowsky)
