Brazil Raises Interest Rate to 13%


Brazil’s central bank raised the core interest rate by 0.75 percentage points on July 23, confirming the bank’s increasing concern over inflation.

The move followed two rate rises of 0.5 points since April, when the bank began raising rates after three years of monetary loosening.

Consumer price inflation was running at an annual rate of more than 6 per cent in the 12 months to June, above the government’s core target of 4.5 per cent. Most economists expect it to reach 6.5 per cent by the end of the year, the upper limit of the government’s target range.

More pressure on consumer inflation is expected to come from quickly rising prices in the wholesale sector and from imported goods.

Recent comments by Mr Meirelles and other ministers have indicated a recognition that monetary policy alone cannot overcome inflationary pressures and that there is a need for tighter fiscal policy to curb overall demand by cutting government spending. But the government’s budget proposal sent to Congress this week proposes increases rather than cuts in public spending.


TradingEconomics.com, Financial Times
8/25/2008 7:14:02 AM