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Central
Bank tightens more than expected
On 21 October, the monetary policy committed of the Central Bank (COPOM)
decided to raise the benchmark SELIC interest rate by 50 basis points to
16.75%. The October hike in the benchmark interest rate represented
the second consecutive increase and exceeded market expectations, which
had the SELIC rising 25 basis points. Inflation concerns are likely
to force the Central Bank to adopt a more cautious monetary policy stance.
Consensus Forecast participants see the SELIC rate remaining at its
current level through the end of the year, which is up from 16.25% last
month’s forecast. Next year, however, more moderate growth and an
improved inflation setting are likely to enable the Central Bank to lower
the benchmark interest rate to 15.4%.
Lula
victory but loss of key cities
President Luiz Inacio Lula da Silva Workers’ Party (PT, Partido dos
Trabalhadores) garnered a significant victory in nationwide municipal
elections in October. The PT won 409 municipalities, more than
doubling the number of municipalities under its control from 187 in 2000.
Furthermore, the President’s party took six of the 26 state capitals in
the first round and garnered an additional three of the nine remaining for
the second round run-off on 31 October. However, the governing party
lost the mayoralty in two key cities – São Paulo and Porto Alegre –
where former presidential candidate José Serra of the Brazilian Social
Democratic Party (PSDB, Partido da Social Democracia Brasileira) and José
Fogaça of the Popular Socialist Party (PPS, Partido Popular Socialista)
won respectively. Despite the loss of two major capitals, the
elections provide the president with renewed political capital and enable
the administration to advance on remaining economic reforms, particularly
of the bankruptcy law, the Central Bank charter and legislation to private
investment in public infrastructure projects. |
