Brazil's central bank raises interest rate to 3.5%

[BRASÍLIA] Brazil's central bank on Wednesday raised its benchmark interest rate for the second time in a row by another 75 basis points to 3.5 per cent as it tries to curb inflation, in an economy that has been hit hard by the coronavirus pandemic.

The decision, which was unanimous, was in line with analyst expectations, and had been signaled by the bank's monetary policy committee in March, when they raised rates for the first time in six years.

The committee indicated Wednesday that another rate hike of the same size was likely at the next meeting, set for mid-June.

Latin America's biggest economy initially weathered the Covid-19 economic meltdown relatively well, better than its neighbours, thanks to its low interest rate of two per cent, but policymakers have been nervous about rising prices.

Following the interest rate hike, officials announced in April that Brazil's annual inflation rate hit 6.1 per cent in March, breaking through the 5.25 per cent ceiling of the central bank's target range.

The central bank now must find the balance to make sure that raising rates to curb inflation does not keep the economy from a much-needed recovery.

AFP