In Brazil, the central bank decides on the biggest hike in the key rate since 2002

The Central Bank of Brazil raised, Wednesday, October 27, its key rate to 7.75%, an increase of 1.5 points, the largest since 2002, in an attempt to curb runaway inflation. This is the sixth consecutive increase in this rate, which was at its historic low of 2% at the start of the year.

This decision was taken unanimously by the Monetary Committee of the Central Bank (Copom), which announced in a press release that it could proceed to a further increase. “Of the same magnitude” at its next meeting in early December.

If this trend is confirmed, the key rate will end the year at 9.25%, while analysts expected 3% at the start of the year. During its last two meetings, Copom had raised the rate by one percentage point.

The main tool in the fight against inflation, the Selic rate has already returned to its level at the end of 2017, when it stood at 7.5%. Wednesday’s 1.5 point hike is a particularly drastic measure, unheard of since December 2002, when the key rate was raised by 3%, just before the coming to power of leftist President Luiz Inacio Lula da Silva.

Fuel prices have soared in recent months in Brazil, here at a Petrobras station in Rio de Janeiro, on October 26, 2021.

Double-digit inflation

It is justified by a very strong surge in inflation, which reached 10.25% in September over the last 12 months in the largest economy in Latin America and eats away at the income of families, especially the poorest.

This is the first time since 2016 that Brazil has returned to double-digit inflation, due in particular to the sharp increase in the price of food and fuel.

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According to experts, this new increase in the key rate is also due to the decision of Brazilian President Jair Bolsonaro to increase allowances for the poorest by 20%.

This highly controversial proposal has yet to be submitted to Parliament for approval. According to specialists, it would be practically impossible to reach this amount without exceeding the ceiling of budgetary expenditure.

The popularity of the far-right president, who is aiming for re-election next year, is at its lowest since taking office in 2019, in a country with more than 13.7 million unemployed.

On Wednesday morning, the IBGE statistics institute unveiled the latest employment data, with a fourth consecutive drop in the unemployment rate, to 13.2%, but with a large proportion of informal work and lower wages for active

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The World with AFP

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