Brazil’s central bank increased its key interest rate to 14.25% on Wednesday, reaching a nine-year high in an effort to control inflation in the country, which is the largest economy in Latin America. This marks the fifth consecutive rate rise amidst a challenging external economic environment and persistent domestic inflation.
Despite President Luiz Inacio Lula da Silva advocating for lower rates to stimulate economic growth, the Monetary Policy Committee of the bank indicated the possibility of further rate increments, albeit of a smaller magnitude, in the coming months if current conditions persist. The last time interest rates were this high was between July 2015 and October 2016, during Brazil’s economic recession.
Inflation Trends and Economic Measures
Brazil’s inflation rate for goods and services increased by 5.0% year-on-year, surpassing the government’s target and projected to close at 5.66% by the end of the year. In response to ongoing food inflation, the government recently removed import tariffs on essential goods like meat, coffee, and corn.
Economic Growth vs. Inflation Control
Despite inflation concerns, the country has managed a relatively low unemployment rate of 6.5% and achieved a growth rate of 3.4% in 2024, marking its strongest economic performance since 2021. This development underscores the balancing act the central bank must perform between curbing inflation and fostering economic growth.
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