Brazil's central bank raised its target interest rate by 1 percentage point to 14.25pc amid accelerating inflation in a decelerating — but still heated — economy.
The hike in the target rate, announced Wednesday, was the fifth in a row from a cyclical low of 10.5pc at the end of September last year, partly prompted by accelerating depreciation of the currency, the real, to the US dollar.
Brazil's annualized inflation hit 5.06pc in February and is poised to keep accelerating. The bank's Focus economic report increased its inflation forecast to 5.7pc for the end-of-year 2025 from 5.5pc in January, when the bank's policy-making committee last met. Brazil's current government has an inflation ceiling goal of 3pc with tolerance of 1.5 percentage point above or below.
The bank has recently changed the way it tracks the inflation goal. Instead of tracking inflation on a calendar year basis, it now monitors the goal on a rolling 12-month basis.
The bank cited heated economic activity and a strong labor market as factors that have contributed to rising inflation. But the bank forecasts "modest GDP growth" for Brazil of almost 2pc in 2025, down from 3.4pc growth last year.
Further tightening will also be linked to global economic uncertainty prompted by US president Donald Trump's aggressive trade and other policies and the monetary policies of the US Federal Reserve, according to the bank.
Brazil's target interest rate is expected to keep rising at the bank's next meeting in 6-7 May, albeit to "a lesser extent" as the contributing factors are set to moderate, according to the committee.
