Brazil’s basic interest rate jumps to 10.25%

Close on the heels of the announcement that Brazil was growing China-like (first quarter of 2010 GDP growth was 9%, compared to first quarter of 2009; or up 2.7%, compared to last quarter of 2009), the Brazilian Central Bank monetary committee (known as the Copom) raised the country’s basic interest rate for the second consecutive time (Copom meetings take place every 45 days). Brazil’s basic interest rate, known as the Selic, is now 10.25% (the increase, once again, was a sharp, no-nonsense, we-mean-business, 0.75 percentage points). The Brazilian Central Bank (the country’s Fed) takes its mandate to control inflation very seriously.

As some market observers expect the Selic to rise to 11.75% by the end of this year, these recent increases are considered normal. On the other hand, many business and union leaders complained loudly about the change of course.

This is because, for a nine-month period (beginning in mid 2009), Brazil’s Selic remained at a historical low of 8.75%. There were hopes in some quarters that something really different was happening – maybe the Selic would drop further. But in late April this year the first 0.75 percentage point increase occurred, and the rate rose to 9.50%. Now, at 10.25%, the brakes have been put on Brazil’s China-like growth. Even so, year-end GDP growth should be a strong 6%.