3Q CENTRAL BANKING: Brazil's Rates Seen Headed Higher

 
  By Jeffrey T. Lewis 
 

        The big question for observers of Brazil's central bank is how high can interest rates go? Consumer prices in the South American country are rising at the fastest pace since 2003, and central bank officials have started using ever more hawkish language in speeches and official documents.
        The bank raised its benchmark interest rate, the Selic, to 13.75% in early June, its highest level in more than six years--and warned in the minutes from the meeting that "determination and perseverance" are necessary to bring inflation down.
        Brazil's government further highlighted its commitment to getting prices back under control when, on June 25, it narrowed the tolerance band of the central bank's inflation target by 1 percentage point. The center point of the target, 4.5%, was unchanged, but the range is now 3%-6%, from 2.5%-6.5%. The change takes effect in 2017.
        The central bank's next two monetary policy meetings are July 28-29 and Sept. 1-2. Analysts generally expect another half-percentage-point rate increase in July and at least a quarter point in September. The bank has already raised the Selic 15 times in the current tightening cycle, which started in 2013.
        Those two increases would bring the Selic to 14.5%, which would be its highest since 2006. The central bank said in its quarterly inflation report, published June 24, that it expects the inflation rate to reach 9.0% at the end of 2015. If that forecast is correct, it would be the first time since 2003 that 12-month inflation ended the year outside the bank's target range.
        Write to Jeffrey T. Lewis at jeffrey.lewis@wsj.com
        (END) Dow Jones Newswires

        July 08, 2015 05:59 ET (09:59 GMT)

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