Brazil's central bank left its benchmark Selic rate unchanged at 14.25 percent, saying it will first start easing its monetary policy when it is more confident that inflation will decline to its target range, especially the 4.5 percent target for 2017.
The Central Bank of Brazil, which has maintained its rate since July 2015 as inflation decelerates, added that data since the July meeting of its policy committee - known as Copom - showed the country's economy had stabilized and there was a possible pick up in activity although the economy continues to operate with a high level of slack.
But disinflation has evolved slower than the central bank had expected and Copom's inflation forecast for this year has risen since July to around 7.4 percent while forecasts for the next two years have remained stable of declined.
Inflation for 2017 is forecast by the central bank to decline to around the 4.5 percent target though financial markets are looking for inflation of 5.1 percent, the bank said. This is down from markets' expectation in July for inflation next year of around 5.3 percent.
Brazil's inflation rate eased to a 2016-low of 8.74 percent in July from 8.84 percent in June and the lowest since May 2015. This year the central bank has a target range of 2 percentage points around midpoint target of 4.5 percent, but this range narrows to 1.5 points in 2017.
Among the domestic factors that Copom said it was keeping an eye on was the the shock from food prices on inflation was limited, that components of the consumer price index showed disinflation, that there is less uncertainty around the approval and implantation of necessary economic adjustments, including fiscal measures.
The central bank added that the decision to maintain the Selic rate was unanimous.
After depreciating from July 2014 until January this year, the exchange rate of Brazil's real has been rising strongly and was trading at 3.23 to the U.S. dollar today, up 22.6 percent this year.
In March the central bank revived its intervention program in light of the strong gains in the real but earlier this month it scaled back the program by reducing the amount of reverse foreign-exchange swaps it offers.
On Aug. 12 Ilan Goldfajn, central bank governor, again said that only use its currency tools in a sparing manner when needed as it does not want to hurt the floating exchange rate regime.
The Central Bank of Brazil issued the following statement: