Brazil’s Central Bank Raises Interest Rate To 3.5 Pct

Brazil’s central bank on Wednesday raised its benchmark interest rate for the second time in a row by another 75 basis points to 3.5 percent as it tries to curb inflation in an economy ravaged by the pandemic.

The unanimous decision was in line with analyst expectations, and had been signaled by the bank’s monetary policy committee in March, when they raised rates for the first time in six years.

The committee indicated Wednesday that another rate hike of the same size was likely at the next meeting, set for mid-June.

Latin America’s biggest economy initially weathered the coronavirus economic meltdown better than its neighbors, thanks to its historic low interest rate of 2 percent, but policymakers have been nervous about rising prices.

The central bank had said March’s rate increase was an effort to impose “partial normalization” and prevent inflation from spiraling out of control.

Following the interest rate hike, officials announced in April that Brazil’s annual inflation rate hit 6.1 percent in March, breaking through the 5.25 percent ceiling of the central bank’s target range.

The central bank now must find the balance to make sure that raising rates to curb inflation does not keep the economy from a much-needed recovery.

After Wednesday’s decision, the voting committee said it anticipated “another adjustment of the same magnitude” in June, warning the central bank may have to take additional steps to “ensure compliance with the inflation goal.”

The bank’s 2021 inflation target is 3.75 percent, but could tolerate up to 5.25 percent.

In January Brazil’s inflation forecast for 2021 was within that target at 3.34 percent, but the rat has since reached 5.04 percent, according to a central bank analysis.