Copom raises Selic to 5.25% per year, the fourth consecutive increase

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The Monetary Policy Committee (Cup) raised the interest rate target Selic by 1 percentage point (pp), from 4.25% to 5.25% per year, in a decision this Wednesday, 4.

This was the fourth interest rate hike since March, when the rate was still at 2% a year. At the last meeting, held in June, the collegiate had raised the Selic by 0.75 pp, leaving open the possibility of a new increase of the same magnitude or greater, depending on market conditions.

With the 12-month IPCA above 8% and inflation expectations above the mid-point target for 2022, option was a tougher move, in line with market expectations. “The strategy of being more timely in the adjustment of monetary policy is the most appropriate to guarantee the anchoring of inflation expectations,” stated the Copom in a statement.

The statement still classifies consumer inflation as “persistent” and that the latest indicators show a more “unfavorable” composition. “The surprise with (…) services inflation and the continued pressure on industrial goods stand out. The Committee also cites the rise in food prices and the energy bill as “factors [que] entail a significant revision of short-term projections.”

Selic rate

The basic interest rate is used in trading public securities issued by the National Treasury in the Special System for Settlement and Custody (Selic) and serves as a reference for the other rates of the economy. It is also the central bank’s main instrument to keep inflation under control. The BC operates daily through open market operations – buying and selling federal government bonds – to maintain the interest rate close to the value defined at the meeting.

When the Copom increases the basic interest rate, the purpose is to contain the heated demand, and this causes reflexes on prices because the higher interest rates make credit more expensive and stimulate savings. In this way, higher rates can curb economic activity. By reducing the Selic, the trend is for credit to become cheaper, with incentives for production and consumption, reducing inflation control and stimulating economic activity.