Brazil Central Bank Hikes Rates to Near 20-Year High, Leaves Next Steps Open

• Brazil's central bank raised interest rates by 50 basis points on Wednesday in a sixth straight hike that pushed borrowing costs to their highest in nearly 20 years, and left future steps open amid global uncertainties and sticky domestic inflation. The bank's monetary policy committee, known as Copom, raised the Selic to 14.75% in a unanimous decision, matching forecasts from 32 of 35 economists in a Reuters poll.
• Policymakers stressed that the current environment calls for a "significantly contractionary monetary policy for a prolonged period" to bring inflation to target, dropping previous language about the need for "a more contractionary" stance.
• Flavio Serrano, chief economist at BMG Bank, said the central bank left the door open for a smaller rate hike in June if needed, though he sees it as unlikely. "My base case is zero increase in June, holding at 14.75%. There may be room for a cut at the very end of the year, depending on how the outlook evolves," he said.
• In March, the central bank had already flagged the need for further tightening this month, though at a slower pace than the previous three 100 basis-point hikes. With Wednesday's move - announced just hours after the U.S. Federal Reserve held rates steady but cited the risk of rising inflation and unemployment - the Selic benchmark rate has now reached its highest level since August 2006.
• The sky-high rates come against a backdrop of a 5.49% annual inflation rate, well above the official 3% goal, with markets sceptical that inflation will return to target even by as far out as 2028.

(Source: Reuters)