Wednesday, September 2, 2015

Brazil maintains rate at 14.25% and on hold for long time

    Brazil's central bank left its benchmark Selic rate unchanged at 14.25 percent, a decision that was widely expected after the bank in July signaled the key interest rate had now reached a level that was high enough to slow inflation toward its 4.50 percent target by the end of 2016.
    The Central Bank of Brazil, which has raised its rate by 250 basis points this year and by 700 points since starting its tightening cycle in April 2013, added the decision by its monetary policy committee, known as Copom was unanimous and there was no bias indicated.
    In a brief statement, the central bank repeated its wording from its statement on July 29 that it understands that the rate will be held at the current level "for a sufficiently long period" for inflation to converge toward its target in late 2016.
    Brazil's inflation rate in July rose further to 9.56 percent from June's 8.89 percent, reaching a new high for the year and a level not seen since 2003. Higher prices for food and utilities have driven up inflation, with electricity prices, for example, up by 57 percent over the last year.
    Although the central bank has pledged to push down inflation to its target by late 2016, analysts recently raised their 2016 inflation forecasts to 5.43 percent.
    Such an inflation rate would be within the central bank's tolerance range of 2.5 to 6.5 percent.
   A steady decline in the value of Brazil's real since mid-2014 has helped push up Brazil's inflation rate, with the real trading at 3.76 to the U.S. dollar today, down almost 30 percent this year.
    Brazil's Gross Domestic Product contracted by 1.9 percent in the second quarter from the first quarter for annual fall of 2.6 percent, the fifth consecutive quarter of lower output on an year-on-year basis. On a quarterly basis, GDP also fell 0.7 percent in the first quarter, meeting the technical definition of a recession.
    The contraction in the second quarter has led economists to raise their forecast for Brazil's economy to shrink by 2.26 percent this year, up from earlier forecasts of a 2.06 percent fall, according to press reports. Last year Brazil's economy expanded by only 0.1 percent.



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