By Marcela Ayres
BRASILIA (Reuters) -Brazil’s central bank raised interest rates by 25 basis points on Wednesday and signaled it will keep borrowing costs steady for an extended period, defying expectations that it had already reached the end of its tightening cycle.
The bank’s rate-setting committee, known as Copom, decided unanimously to lift the benchmark Selic rate to 15%, the highest since July 2006, marking a seventh consecutive hike as unanchored inflation expectations and resilient activity in Latin America’s largest economy kept policymakers on alert.
A majority of 27 out of 39 economists polled by Reuters had expected the bank to hold rates at 14.75%. Interest rate futures, however, showed divided expectations, pricing in roughly even odds between a pause and one final hike.
In its statement, the central bank indicated that, after lifting rates by 450 basis points since last September, it now plans to maintain them at current levels while monitoring inflation’s path back toward its 3% official target.
“The Committee foresees an interruption of the rate hiking cycle to examine its yet-to-be-seen cumulative impacts, and then evaluate whether the current interest rate level, assuming it stable for a very prolonged period, will be enough to ensure the convergence of inflation to the target,” policymakers wrote.
In May, the central bank had already stressed that a “significantly contractionary” stance would be needed for a “prolonged period” to bring inflation back to target, scrapping prior references to needing a “more contractionary” posture.
Policymakers also removed any form of forward guidance, emphasizing a strictly data-dependent approach.
That had led many to bet that the central bank was already done with its tightening cycle.
However, those views were tempered in recent days after central bank officials flagged that the cycle remained open, citing concerns about unanchored inflation expectations and a desire to keep options open as they digested data to calibrate the terminal rate.
(Reporting by Marcela AyresEditing by Brad Haynes)
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