Brazil central bank hikes rate to highest level in 19 years

RIO DE JANEIRO: Brazil's central bank on Wednesday hiked its benchmark interest for the sixth consecutive time, citing persistent inflation worries and heightened trade uncertainty surrounding US President Donald Trump's sweeping tariffs.

The increase by the bank -- which has ignored leftist President Luiz Inacio Lula da Silva's warnings that high rates stifle economic growth -- lifted the benchmark Selic rate to 14.75 percent.

The half-point hike puts the rate at its highest level since July 2006.

The bank's Monetary Policy Committee cited an “adverse and particularly uncertain” global outlook, due to the economic situation and policy of the United States,“ particularly its trade policy.

At home, it noted that annual inflation, which it has forecast to reach 5.5 percent in 2025 and 4.5 percent in 2026, was well above the bank's target of 3.6 percent.

A majority of the institutions and consulting firms surveyed by the financial daily Valor had expected the rate hike.

Besides high inflation, economist Mauro Rochlin, of the Getulio Vargas Foundation (FGV), pointed to an “overheated labor market.”

In March, prices in Brazil rose 5.48 percent compared to the same month in 2024.

Analysts say persistently fast-rising prices partly explains left-wing Lula's sinking popularity.

His approval rating of just 24 percent is at his lowest point in his three terms in office, according to a survey published in February by the Datafolha institute.

Rising food costs have fuelled the spike in inflation, leading the government eliminate tariffs on imported products such as meat, sugar, and coffee.

On some other measures, the economy has posted progress.

Unemployment fell to seven percent in the first quarter of 2025, the lowest for the period since 2014, and GDP grew 3.4 percent in 2024, its strongest increase since 2021.