Brazil Interest Rate Announcement (Dec.)

Brazil’s central bank stepped up the pace of tightening with a larger-than-expected 100bp hike, to 12.25%, to the Selic rate and made clear that there will be at least two more 100bp increases, to 14.25%. We think that this will prove sufficient, especially as it will leave monetary conditions in very restrictive territory, but that rests on the government eventually outlining enough austerity measures to soothe investors’ unease about the public finances.