MNI BRIEF: BCB Monitoring Tightening Impact, Higher For Longer

The Central Bank of Brazil has decided to interrupt its rate-hiking cycle to assess the impact of tightening already implemented, though interest rates will need to remain at a "significantly contractionary" level given unanchored inflation expectations, minutes showed Thursday.

The board highlighted that the economy remains resilient, making the convergence of inflation to the target more difficult and requiring a more restrictive monetary stance.

"Following a swift and firm interest rate hike cycle, the Committee anticipates, as its monetary policy strategy, the interruption of the rate-hiking cycle to observe the effects of the cycle already implemented and then evaluate whether the current interest rate is appropriate to ensure the convergence of inflation to the target," the minutes said.

The BCB raised its interest rate by 25 basis points last week to 15.00% and signaled that, if the expected scenario materializes, "the Committee foresees an interruption of the rate hiking cycle to examine its yet-to-be-seen cumulative impacts." (See MNI WATCH: BCB Likely Done Hiking Barring Inflation Surprise)