Central Bank raises Selic by 1 point and rate goes to 11.75% per year

The Monetary Policy Committee (Copom) of the Central Bank (BC) announced, this Wednesday (16), an increase of 1 percentage point in the basic interest rate. Thus, the Selic rate increases from 10.75% per annum (pa) to 11.75% per annum.

This was the ninth consecutive advance of the Selic, which remained at the lowest historical level of 2% pa between August 2020 and March 2021. It is the highest level of the rate since February 2017.

With the decision, in line with what was expected by the market, the Copom continues a cycle of increases that began in March 2021 to combat inflation in the country, which ended 2021 at 10.06%.

In a statement, the Copom says that it assesses “that the moment requires serenity to assess the extent and duration of the current shocks”. “If these prove to be more persistent or larger than anticipated, the Committee will be ready to adjust the size of the monetary tightening cycle. The Committee emphasizes that it will persevere in its strategy until it consolidates not only the disinflation process but also the anchoring of expectations around its goals”, says the text.

For the next meeting, the Committee indicated that it should have another adjustment of the same magnitude. “The Copom emphasizes that the future steps of monetary policy may be adjusted to ensure the convergence of inflation to its targets, and will depend on the evolution of economic activity, the balance of risks and inflation projections and expectations for the relevant horizon of monetary policy. .”

With the rise in fuel prices, the market already admits that inflation tends to fall less than expected in the 12-month period up to March. In the 12-month period up to February, the Broad Consumer Price Index (IPCA), which measures the country’s official inflation, is expected to remain around 10%.

Last year, the inflation target of 3.75% – reaching up to 5.25% – was not met. The increase in interest rates directs efforts to prevent it from happening again, seeking to bring inflation within the targets for 2022 and, especially, for 2023, which are 3.5% and 3.25% per year, respectively. , with a tolerance of 1.5 percentage points up or down.

For this year, the target is 3.75%, with a tolerance of 1.5 percentage points up or down. That is, it can range between 2.25% and 5.25%. Next year, the center of the target is 3.5%, with the same margin (2% and 5%).

The basic interest rate is the Central Bank’s main instrument to pursue the inflation target, established by the National Monetary Council (CMN). A higher interest rate, however, can delay the recovery of economic activity.

Financial market analysts expect inflation at 6.45% in 2022 and 3.7% in 2023, according to the latest edition of the Focus Bulletin. With this, the expectation is for a Selic rate of 12.75% per year until the end of this year, falling to 8.75% per year next year.