Brazil’s central bank hikes rate to 12.25% (from 11.25% and vs. 12% expected)

Banco Central do Brasil Monetary Policy Committee (Copom) decision:

Selic Interest Rate hiked to 12.25%

• prior 11.25%
• expected hike was to 12.0%
• The decision was unanimous.In light of a more adverse scenario for inflation convergence, the committee anticipates further adjustments of the same magnitude in the next two meetings.The total magnitude of the tightening cycle will be determined by the firm commitment of reaching the inflation target.The pace of future interest rate adjustments and total cycle magnitude will depend on inflation dynamics, expectations and projections, output gap, and balance of risks.The current scenario is marked by additional de-anchoring of inflation expectations, an increase of inflation projections, a stronger than expected economic activity, and further widening of the output gap.This requires an even more contractionary monetary policy.The committee has been monitoring closely how the recent developments on the fiscal side impact monetary policy and financial assets.The perception of agents about the recent fiscal announcement has significantly impacted asset prices and expectations, especially the risk premium, inflation expectations and the exchange rate.The committee judges that these impacts contribute to a more adverse inflation dynamics.The scenario is less uncertain and more adverse than in the previous meeting.The set of local indicators on economic activity and labor market continues to exhibit strength, as observed in the recent release of GDP, which suggests a further widening of the output gap.Headline inflation and measures of underlying inflation are above the inflation target and have increased in recent releases.The global environment remains challenging, due mainly to the economic outlook in the United States.

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Meanwhile, at the Fed:

This article was written by Eamonn Sheridan at www.forexlive.com.