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Brazil at Risk of Steeper Rate Hikes, Former Central Banker Says

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Brazil’s central bank is at risk of having to raise interest rates more than expected just a month after surprising investors with a bold rate hike, according to former central bank chief Gustavo Loyola.

The second wave of the Covid-19 pandemic and a complicated discussion about this year’s budget made monetary policy difficult, said Loyola, who presided over the monetary authority twice during the 1990s. Faced with the country’s “anemic” activity and inflationary pressures from rising energy and food costs, policy makers have opted to merely monitor both — a strategy that could force the bank to raise rates more than it already signaled.

“They’re in a difficult position,” Loyola, currently a managing partner at Tendencias Consultoria, said in an interview. “They’re waiting to see what the scenario will bring, if this pace of tightening is enough to anchor inflation expectations.”

Former Central Bank president Gustavo Loyola talks about perspectives on the Brazilian economy and monetary policy. (in Portuguese). (

Brazil Needs More Caution on Inflation, Ex-Central Banker Says

The central bank raised the benchmark Selic rate by 75 basis points to 2.75% last month, and indicated another increase of the same size in May. The move — the first this year among the Group of 20 nations — surprised economists, who had expected a 50 basis point hike, but now traders are already pricing in an even stronger tightening, according to Loyola.

The former policy maker said that central bank chief Roberto Campos Neto “did everything right” when the coronavirus pandemic broke out in the country, but was caught off guard by the resurgence of the pandemic this year. The new wave of the virus, worse than the first in both infection and death counts, demanded more spending and hindered economic recovery forecasts.

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