Wednesday, November 28, 2012

Brazil holds rate steady, signals stable policy for long time

    Brazil's central bank kept its benchmark Selic interest rate steady at a record low 7.25 percent, as widely expected, saying stable monetary conditions for a "sufficiently long period of time" would be the right strategy to ensure that inflation meets the bank's target.
    Banco Central do Brazil, which has cut its rate 10 times in a row and seven times in 2012 to stimulate the economy, said the policy decision by its committee was unanimous and no bias was indicated. It was the final meeting of the Copom committee this year.
    Inflation rose to 5.45 percent in October - the fourth monthly increase in a row - from 5.28 percent in September. The bank targets inflation of 4.5 percent, plus/minus 2 percentage points. In the month to mid-November, inflation rose to 5.64 percent
    "Considering the balance of risks to inflation, recovery in domestic activity and the complexity involved in the international environment, the Committee believes that the stability of monetary conditions for a sufficiently long period of time is the most appropriate strategy to ensure the convergence of inflation to the goal, albeit not linear," the bank said in statement.
    Brazil's Gross Domestic Product rose by only 0.50 percent in the second quarter from the same quarter last year, down from an annual rate of 0.8 percent in the first and 1.4 percent in the fourth.
    The Selic rate has been cut by 375 basis points this year.  
      Financial markets had expected Brazil's central bank to end the year by keeping rates steady and last week central bank president Alexandre Tombini said economic activity was starting to accelerate and the economy was growing at a pace of 4.7 percent in the fourth quarter.
     He expects Brazil's economy to expand by only 1.6 percent in 2012 but then accelerate to around 4.0 percent in 2013.
    Earlier this month Tombini had also said that keeping the key interest rate unchanged for a prolonged time was the best strategy to ensure inflation will slow to its target next year and there was no need to change policy following the October rate cut.


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