Brazilian Central Bank to maintain rates amid creeping inflation

The Central Bank of Brazil will today release its December inflation rate. At its last meeting on December 9, Brazil’s

Central Bank Braz

Credit: Central Bank of Brazil

The Central Bank of Brazil will today release its December inflation rate.

At its last meeting on December 9, Brazil’s Monetary Policy Committee (COPOM) unanimously agreed to maintain rates at a historic low of 2%. The decision was made despite rising inflationary pressure, with the November 2020 inflation rate hitting a one-year high of 4.3%. As such, inflation rate forecasts for 2021 have been slightly raised.

Analysts forecast that the 2% interest rate will be maintained throughout 2021 and it is likely to trend upwards slightly to 2.5% by early 2022. COPOM has stated that they believe the conditions for maintaining the current degree of monetary stimulus—well-anchored inflation projections, monetary policy horizon projections below target rates and maintenance of the current fiscal regime—are met well enough to leave interest rates unchanged.

The Brazilian economy has been hard-hit by the COVID-19 pandemic; Brazilian GDP dropped 4.5% in 2020. While the World Bank’s 2021 GDP estimate has increased by 0.8% since June, this increase is unlikely to offset 2020 losses. COPOM’s monetary policy aims to increase consumer spending though increasing fuel and food prices have the potential to upset COPOM’s plans to hold interest rates steady at 2%.

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