Wednesday, May 29, 2013

Brazil raises rate 50 bps to bring down inflation

  Brazil's central bank raised its benchmark Selic rate by 50 basis points to 8.0 percent to help bring down inflation and "ensure that this trend will continue next year."
    In a brief statement, the Central Bank of Brazil said its policy committee, known as Copom, had agreed on the rate rise unanimously and it did not issue a bias about the future trend of policy.
    It is the second consecutive rate rise by Brazil's central bank following a 25 basis point rise in April, bringing this year's total rate increase to 75 basis points. In 2012 the central bank cut rates by 375 basis points in response to declining economic growth before freezing rates from November through March.
    Today's rate rise was largely expected and follows recent warnings by the central bank's governor that he would do "what is needed, in a timely manner, to ensure inflation declines."
    Brazil's inflation rate eased to 6.46 percent in the rolling one-month period through May 15 from 6.49 percent in April, close to the upper limit of the central bank's target range of 4.5 percent, plus/minus two percentage points. It was first decline since inflation started to accelerate in July 2012.

   The central bank has forecast inflation of 5.7 percent this year and 5.3 percent in 2014.
    Brazil's Gross Domestic Product expanded by 0.6 percent in the first quarter, the same quarterly rate as in the fourth quarter, for annual growth of 1.9 percent, up from 1.4 percent in the fourth quarter, continuing a rebound since hitting a recent low of 0.5 percent in the second quarter of 2012.
    Nevertheless, growth in the first quarter was below expectations as industrial output dropped, driven by a 6.6 percent drop in mining, along with lower construction activity.
    Earlier today, the central bank lowered its 2013 growth forecast to 2.93 percent from 2.98 percent but maintained the 2014 forecast at 3.5 percent. In 2012 the economy expanded by only 0.9 percent.

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