Brazil’s sky-high interest rate strains debt levels

As widely expected, Brazil’s Central Bank on Wednesday kept the Selic benchmark interest rate at 15% for the second consecutive meeting. The decision came with a hawkish statement signaling the bank’s intention to hold rates at that level for a “very prolonged period.”

The Monetary Policy Committee no longer notes that, if the baseline scenario materializes, it would foresee the “continuation of the interruption of the rate-hiking cycle.” Instead, it warned that it will “not hesitate to resume the hiking cycle if appropriate.”

The move came just after the US Federal Reserve cut rates by 0.25 percentage points, its first reduction of the year. With borrowing costs in the US now between 4% and 4.25%, the spread with Brazilian rates has widened — making carry trade strategies more attractive.