brazil hikes rates to fight inflation

Fundamentally this increases govt deficit spending/interest income for the private sector, a negative for the currency and inflation, especially as it adds to costs.

However it also adds to spending/output/employment which causes policy makers to think they got it right by hiking as the stronger economy ‘needs’ the higher rates, etc.

Brazil in fourth consecutive rate rise

(FT) Brazil’s central bank has moved to restore investors’ confidence in Latin America’s biggest economy by resorting to its fourth consecutive interest rate increase to tame stubbornly high inflation. The central bank’s monetary policy committee, Copom, raised Brazil’s benchmark Selic rate by 50 basis points to 9 per cent late on Wednesday, the latest increase in a 175 basis point tightening cycle since April. “The committee evaluates that this decision will contribute to set inflation into decline and ensure that this trend persists in the upcoming year,” it said, repeating the brief statement issued at its last meeting in July. On Thursday last week Alexandre Tombini, Brazil’s central bank president, launched an unprecedented $60bn intervention programme to halt the plunge of the real.