Brazil's central bank has raised the key interest rate by half a point to 11.25%, marking the second consecutive rate hike. This move contrasts with the U.S. and EU central banks, which have recently started cutting rates to manage inflation.
In September, Brazil's annual inflation rate stood at 4.42%, considerably above the 3% target, primarily due to ongoing droughts affecting food and electricity prices. A market report predicts the 2024 inflation rate to reach 4.59%.
Factors such as the stronger U.S. dollar impacting the Brazilian real, an overheating labor market, and generous budget measures are contributing to inflation. The government, led by President Luiz Inácio Lula da Silva, is working to address public financial concerns. Finance Minister Fernando Haddad canceled a planned trip to Europe to focus on a budget plan that includes cost-cutting measures.
Brazil's economy grew by 3.3% in the second quarter year-over-year, with a predicted annual growth of 3.1% in 2024. The unemployment rate has decreased by half a percentage point to 6.4% in the third quarter. The September rate hike was the first in two years. Lula has criticized rate hikes, arguing they hinder growth and deter investment. The central bank's monetary policy committee is scheduled to meet again in December.
