Brazil central bank holds interest rates, sees moderating growth by Stocksak

© Stocksak. FILE PHOTO – A woman walks in front of the Central Bank Headquarters Building in Brasilia on March 22, 2022. REUTERS/Adriano Machado

By Marcela Ayres

BRASILIA -The Brazilian central bank on Wednesday maintained interest rates at a record six-year high for its second policy meeting. The central bank noted that while economic growth appears to be slowing, inflation is still high.

Copom, the bank’s rate-setting committee was expected to leave its benchmark Selic rate at 13.75%. This was in line with all 34 economists polled.

Economists and traders are looking for clues as to when rates could fall again. After 12 consecutive increases, policymakers stopped an aggressive tightening cycle. Rates were at a record low of 2.0% in March 2021.

Wednesday’s statement by the central bank reiterated its belief that keeping the Selic rates at this level for a sufficient time is necessary to bring inflation back within its target range.

Copom stated that indicators from their September meeting suggest “more moderate” Brazilian economic growth, but that consumer inflation remains high.

Banco Inter’s chief economist Rafaela Vitoria said that the statement was harsh given recent improvements in inflation. Policymakers warned again that they could resume hiking if necessary.

“The disinflation outlook with a slowing economy, and cheaper commodities is more positive. “I think inflation will continue falling faster than we expected,” she stated, adding that she anticipates a first rate cut in March.

Three consecutive months of deflation have been caused by higher borrowing costs and cuts in energy taxes. Inflation dropped to 6.85% during the 12-month period ending in mid-October.

Although still well above the 3.5% target, inflation has fallen sharply since September 2021 to July. This was due to an increase in commodity prices sparked by the Ukraine war.

The statement was modified only by the central bank, who indicated that 2023-2024 are now equally weighted in its policy horizon.

Although their inflation outlook was unchanged at 5.8% for this year, policymakers increased their forecast for next year from 4.6% last months to 4.8%. This is in contrast to a 3.25% target.

They have raised the inflation forecast for 2024 to 2.9% from 2.8% last week, as opposed to a target of 3%.

After Sunday’s presidential elections, Copom highlighted a potential upside risk of inflation in the outlook for government expenditures.

Polls show that Jair Bolsonaro is only slightly ahead of former leftist President LuizInacio Lula da Silva. Both made costly promises on the campaign trail, including the extension and increase of welfare payments. This would allow for a more flexible constitutional spending limit.

Roberto Campos Neto, the central bank chief, will continue his term through 2024 after a law was passed that established the formal autonomy for the central bank.

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Stocksak Editorial

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