(Adds analyst comments and context)
By Alonso Soto
BRASILIA, July 16 Brazil held interest rates
unchanged for a second straight time on Wednesday but did not
commit to keeping them stable for long as inflation remains high
in Latin America's top economy.
The unanimous decision by the bank's monetary policy
committee to hold the benchmark Selic rate at 11
percent was widely expected by the market after policymakers
ended a year-long tightening cycle at their last meeting.
The bank surprised many in the market by repeating in its
decision statement the phrase that it kept rates on hold "at
this moment." Analysts and traders had expected some indication
from the bank that rates could stay on hold for a prolonged
"Evaluating the evolution of the macroeconomic outlook and
the outlook for inflation, the Copom decided, unanimously, at
this moment, to keep the Selic rate at 11 percent per annum,
without bias," the bank said, using exactly the same language of
its last decision statement on May 28.
Despite pressure on the bank to hike rates to curb inflation
that hit the 6.5 percent ceiling of the official target in June,
policymakers had hinted that they were in no rush to act.
Disappointing growth data is expected to keep the central
bank, led by Alexandre Tombini, from raising interest rates for
the rest of 2014 even though inflation is expected to stay high
for the next two years
"The current central bank board tends to keep options open
for its future decisions without any commitments. It tends to
rely on economic indicators," said Tatiana Pinheiro, economist
with Banco Santander Brasil. "But we think the Selic rate will
stay on hold at 11 percent through the rest of the year."
Brazil's economy has stagnated over the past 12 months and
industrial output fell for three straight months through May.
Some economists say the economy likely shrank between April and
June and that growth in the previous quarter could be revised
into negative territory, meaning Brazil could technically be in
The mix of high inflation and slow economic growth is
hurting the popularity of President Dilma Rousseff who will seek
a second term in the Oct. 5 general election. Nevertheless,
polls show Rousseff remains the frontrunner in the race, though
her political rivals are using Brazil's mounting economic woes
to attack the leftist leader.
In recent weeks, the central bank has said that rates at
current levels will bring inflation toward the 4.5 percent
center of the official target. The bank has said that previous
rate hikes had started to contain prices.
Prices have eased on a monthly basis since March, but
12-month inflation rose to 6.52 percent in June. Inflationary
pressures, however, are expected to remain strong going forward,
in part because prices of some government-regulated items, such
as gasoline and electricity, are due to go up.
A surge in government spending ahead of the elections and
high demand for services will likely prevent inflation from
slowing too rapidly this year.
(Additinal reporting by Silvio Cascione; Editing by Todd
Benson, Andrew Hay and W Simon)