Market estimates are for the benchmark Selic rate to end the year at 12.5%.
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The benchmark Selic rate is 11.75% and is expected to be raised to at least 12% in mid-April.
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The Central Bank of Brazil rose its benchmark Selic rate to 12.5% from 12.25%, as expected, on Wednesday.
That would force the bank to raise the Selic rate from 10.75% where it has been since 21st July.
The benchmark Selic rate is just 8.5%, its lowest rate in 50 years.
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Barclays said Wednesday that it expects the Selic rate to stay at 12.5% for the rest of the year.
Only downward surprises on current inflation and activity could pave the way for another cut in the Selic rate.
Issued by the Brazilian Treasury, the LFTs are fixed income securities, whose yield changes with variation of the Selic rate.
First, the National Development Bank (BNDES), whose loans cost about half the Selic rate, has expanded its lending by almost half.
Less than two weeks before Lula's term began, the central bank raised the benchmark Selic rate by a full three points to 25%.
Barclays expects the Selic rate to reach 12.75% in 2011, with two more 25bp hikes in the July and August monetary policy committee meetings.
Barclays expects the Selic rate to remain at 9.0% throughout 2012.
The Bank cut the base Selic rate last month, citing a slowdown in demand and concerns that the advanced economies might slow even more, easing export demand and commodity prices.
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Loans provided by BNDES are based in the so called TJLP long-term interest rate, which currently stands at 5%, while traditional loans carry a premium over benchmark Selic rate, currently at 12.25%.
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The Central Bank of Brazil, headed by new chairman Alexandre Tombini, announced on Thursday that the benchmark Selic rate would be raised 50 basis points to 11.25%, one of the highest in the world.
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Therefore, we believe that markets will shift the expected floor for the Selic rate down to 8.5% and price a scenario in which the Central Bank continues to ease at a more gradual pace.
With the central bank steadfastly holding the benchmark Selic rate at 7.25 percent, it seems policymakers have turned to currency appreciation in order to try to guide inflationary expectations down after the recent mid-month January inflation read out of of 6 percent, a 12 month high.
If inflation continues to decline in the months ahead, as the government expects following four months of monetary and fiscal measures designed to curb credit and cash flow, then the Central Bank will likely keep the Selic rate unchanged barring any surprises in demand in the third quarter.
Brazil is now seeing a growing inflation problem that can only be controlled by higher interest rates, proving, once and for all, that the level of the benchmark Selic rate has not been politicized to the point of immobility, says Tony Volpon, head of emerging markets Americas at Nomura Securities in New York.
Last month the Central Bank raised its benchmark Selic interest rate by 0.75%, the first rise in nearly two years.
Market expectations are for the Selic benchmark interest rate to hit 7.50 percent before the end of the year.
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The Korean central bank's move came after a similar move in Brazil, where the central bank cut its Selic base interest rate by a quarter of a percentage point to 7.25% Wednesday.
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