Interest rates will continue to rise in Brazil

Significance

The increase, the largest since 2002, comes despite low growth expectations and reflects concerns over rising inflation, with the Central Bank warning of a similar rate rise in December. Investors are concerned by governmental proposals to breach the public spending cap to pay for a new income transfer programme, Auxilio Brasil (Brazil Relief).

Impacts

• Rising prices will fuel popular dissatisfaction with the government.
• Higher interest rates will affect both growth and debt prospects.
• The need to finance pre-election social assistance programmes will put investor sentiment at risk