Brazil Lifts Selic to 10% on High Inflation, Low Confidence

Brazil’s central bank raised its key interest rate for a sixth time, extending the world’s biggest tightening cycle as a weaker currency and widening budget deficit spur inflation pressures.

The bank’s board, led by President Alexandre Tombini, voted 8-0 to raise the Selic today to 10 percent from 9.5 percent, as forecast by 50 of the 52 economists surveyed by Bloomberg. Two analysts predicted a 25 basis-point increase.

The decision sought to “give continuation to the adjustment of the benchmark rate that began in the April 2013 meeting,” policy makers said in their statement posted on the central bank’s website. Board members removed from the statement a phrase used after the previous decision saying the increase would ensure inflation’s continued slowing in 2014.

Brazil’s central bank has raised borrowing costs by 275 basis points since April as the real dropped the most among major currencies and deteriorating fiscal accounts sparked concern of a credit downgrade. Investor pessimism on Brazil’s economy means there is no room to let up on inflation, according to Enestor Dos Santos, principal economist at Banco Bilbao Vizcaya Argentaria and the top Selic forecaster according to data compiled by Bloomberg.

“The burden is on the central bank’s shoulders,” Dos Santos said by phone before today’s decision. “The central bank is fighting to regain lost credibility. Inflation expectations for next year remain elevated.”

Swap rates on the contract maturing in January 2015, the most traded in Sao Paulo today, fell one basis point to 10.82 percent. The real fell 1.5 percent to 2.3305 per dollar, extending its decline this year to 12 percent.