Brazil hikes interest rates after Rousseff’s re-election

Last Updated on Friday, 31 October 2014, 0:14 by GxMedia

Brazil’s President Dilma Rousseff

Brasilia, Oct 29 (EFE).- The decision by Brazil’s central bank to raise interest rates following President Dilma Rousseff’s re-election has taken the market by surprise.

Interest rates were raised on Wednesday by a quarter percentage point from 11 percent, at which they have stood since April, to 11.25 percent.

Brazil’s Central Bank Monetary Policy Committee, that meets every 45 days to chart the direction of the so-called Selic rate, said the decision was justified due to the “escalation of the adjustment of relative prices in the economy that made the balance of inflation risks less favorable.”

“In light of that, the committee considered it appropriate to adjust monetary conditions in order to guarantee, at a lower cost, the prevalence of a more benign inflation outlook in 2015 and 2016,” said the committee which saw five of the eight board members voting in favor of the rate raise and three to maintain it.

In April, interest rates were subjected to a ninth consecutive hike but in the subsequent months the monetary authority opted to keep it at the same level.

Despite advocating measures for inflation control, the market did not expect an immediate rate increase.

The decision came four days after Rousseff was re-elected for a second term beating opposition candidate Aecio Neves who in his campaign had attacked her government for the country’s high inflation and low growth rates, estimated to be 0.3 percent for this year.

According to financial market experts polled weekly by the bank, inflation will be very close to the official target of 6.5 percent at the end of the year.