Brazil keeps in­ter­est rates at 6.5%

Viet Nam News - - WORLD BUSINESS -

BRASÍLIA — Brazil’s Cen­tral Bank ended a run of 12 con­sec­u­tive in­ter­est rate cuts, main­tain­ing the key Selic rate at 6.5 per cent yes­ter­day in a de­ci­sion that sur­prised the mar­ket.

An­a­lysts had broadly ex­pected one more cut to 6.25 per cent. The de­ci­sion re­flected what the bank’s com­mit­tee said was “volatil­ity” at a time of weak re­cov­ery from Brazil’s worst re­ces­sion on record.

The Cen­tral Bank has mounted a sus­tained campaign to breathe life into the mori­bund econ­omy, slash­ing the Selic all the way from 14.25 per cent in Oc­to­ber 2016, a time when the coun­try faced not only neg­a­tive eco­nomic growth but high in­fla­tion.

An­a­lysts said the cur­rently rock-bot­tom in­fla­tion, 2.76 per cent in April, which is well be­low the of­fi­cial three per cent tar­get, would have given the bank a chance to lower rates one more time. The Fiesp and Ciesp, two in­dus­trial fed­er­a­tions in the eco­nomic cen­tre of Sao Paulo, crit­i­cized the Cen­tral Bank’s cau­tion.

“Main­tain­ing the Selic will de­lay even more the reduction in the cost of credit. We see a risk of the eco­nomic re­cov­ery dy­ing just when Brazil was try­ing to get out of its worst cri­sis,” they said in a state­ment. “Growth is still very frag­ile... (and) ex­pen­sive credit works against the coun­try.”

But an­a­lysts were fac­tor­ing in the near cer­tainty that the bank would pause cuts at the next meet­ing, even if not at this one, due to po­ten­tial new in­fla­tion­ary threats.

These in­clude pos­si­ble rate hikes in the United States, the in­crease in oil prices and de­val­u­a­tion of the na­tional cur­rency, the real, an­a­lysts say. The real has lost 10 per cent of its value against the dol­lar since Jan­uary.

An­other fac­tor spook­ing the bank is the ab­sence so far of a strongly pro-mar­kets pres­i­den­tial can­di­date in elec­tions due in Oc­to­ber and the stalling of cur­rent Pres­i­dent Michel Te­mer’s aus­ter­ity re­forms.

In a state­ment, the bank’s mone­tary pol­icy com­mit­tee re­ferred to dashed “ex­pec­ta­tions for con­ti­nu­ity in re­forms and the ad­just­ments needed for Brazil’s econ­omy.” That “raises the tra­jec­tory for in­fla­tion,” it said.

Af­ter two years of re­ces­sion, Brazil re­turned to eco­nomic growth in 2017, with gross do­mes­tic prod­uct ex­pand­ing by a mea­ger one per cent. How­ever, the re­cov­ery has been slow and un­even. — AFP

Peo­ple walk through a shop­ping dis­trict in Sao Paulo, Brazil. — Photo boston­her­ald.com

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