(Recast, adds analysts comments, minutes details and context)
BRASILIA, June 5 The Brazilian economy will grow
less this year than in 2013, but policymakers remain on their
guard to battle high inflation, the central bank said on
Thursday, signaling borrowing costs could remain on hold for
In the minutes of the central bank's last interest rate
setting meeting, the monetary authority warned that prices
remain high in Latin America's largest economy.
The bank kept its benchmark Selic rate on hold
at 11 percent last week, but signaled policymakers are prepared
to hike rates again if needed to curb any surge in prices.
Many economists said further tightening would probably be
needed to bring inflation back to the center of the official
target range of between 2.5 percent and 6.5 percent. But some
have recently raised the possibility that the bank could
actually cut rates next year if the economy slows further or
falls into a recession.
"In the minutes, the bank remains very worried about the
inflation outlook and that should dissipate these views that the
bank could cut rates," said Juan Jensen, chief economist with
Sao Paulo-based consultancy Tendencias. "The bank is signaling
it will keep rates on hold for some time."
Double-digit interest rates, sagging business confidence and
a still subdued global economy have dragged down activity in
Brazil, once one of the world's fastest-growing economies. The
Brazilian economy is expected to grow only 1.5 percent this
year, down from 2.5 percent in 2013.
A sharp slowdown of economic activity in the first quarter
has prompted many economists to cut their economic estimates for
the year, foretelling a fourth straight year of lackluster
The bank seemed to follow that sentiment and said in the
minutes that "the pace of domestic activity tends to be less
intense this year, compared to 2013." In the previous minutes,
the bank had said the pace of activity was going to remain
Still, the central bank said that it will remain vigilant to
counter high prices and pointed to inflationary pressures such
as the likely increase of some government regulated prices and
convergence of domestic prices with international ones.
The bank changed the language from its past minutes to say
that part of the effects of previous rate increases will still
materialize. It also dropped previous reference to cumulative
and lagging impact of monetary policy on prices.
The bank said both its 2014 and 2015 inflation estimates
were reduced from previous meetings.
For Icatu Vanguarda economist Rodrigo Melo the bank is
signaling it will keep rates on hold for as long as possible.
"These are the minutes of a bank that stopped (hiking
rates)and wants to stay put for a while. Unless you have a
reversion of the outlook," he said.
(Reporting by Alonso Soto and Silvio Cascione Editing by W
Simon and Sofina Mirza-Reid)