Brazil’s central bank tries to claw back lost credibility

The surprise decision by Brazil’s central bank to raise interest rates now, rather than waiting for Dilma Rousseff’s new government to take shape, is an early sign that tackling inflation could be given greater priority in Dilma’s second term. The focus will now shift to the government’s plans for fiscal policy. But a further tightening of monetary policy is likely to be needed too. As things stand, we’re comfortable with our forecast for further hikes of at least 75bp over the coming months.