Brazil nudges double digits as central bank raises rates

Brazil nudges double digits as central bank raises rates

Brazil Economy & Policy Corporate & Sovereign Strategy

The Central Bank of Brazil, led by Alexandre Tombini, is likely to raise the Selic rate at its next meeting, analysts said after a 50 basis point rise to 9.5% on Wednesday.

Analysts were split over how high the Selic rate would rise this year, though.

Wednesday’s move was the bank’s fifth consecutive increase, as it targets inflation.

Bradesco analysts said they expected a 50 basis point hike in November. Goldman Sachs analysts agreed, saying the consistency of the central bank’s statements meant another 50 basis point lift was ahead.

“The unchanged statement implies that the case for reducing the magnitude of hikes to 25 basis points in November would have to be supported by better-than-expected inflation data and/or worse-than-expected growth data, or a meaningful dovish shift in the global macro outlook,” the bank said.

Copom’s last split decision was in April, when six committee members voted in favor of a hike and two against, as the rate increased 25 basis points. Since then, the committee has voted unanimously in favor of 50 basis points hikes.

Another rate rise at the next meeting was the most likely outcome, said Bank of America Merrill Lynch analysts. “Although a 50bp increase appears to be the next move in the November meeting, the weakness in recent economic data continues to point towards the end of the tightening cycle before year-end,” the bank said.

But Barclays disagreed. The bank said a 25 basis point increase was its best guess for a November move.

Barclays said it expected growth to slow in the second half of the year, with GDP expansion of 0.2% and 0.3% in the third and fourth quarters, down from 1.5% in the second quarter. LF

See also: The problem with Brazil