The decision by Brazil’s central bank to raise interest rates by 50bp to 10.5% was in line with our forecast but against the consensus, which had expected a smaller 25bp increase. As it happens, the accompanying statement to the decision hints that policymakers will now slow the pace of tightening over the coming months. Even so, interest rates look set to rise further, which, when added to the already substantial tightening over the past year, will weigh on growth and put pressure on the finances of over-stretched households.
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