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Brazil set to keep interest rates on hold despite high inflation
March 2, 2016 / 6:01 AM / 2 years ago

Brazil set to keep interest rates on hold despite high inflation

BRASILIA, March 2 (Reuters) - The Brazilian central bank is expected to keep interest rates on hold for a fifth straight time on Wednesday, opting to give a breather to an economy in free fall despite a surge in inflation.

Forty-nine of 50 economists expect the bank to maintain its benchmark Selic rate steady at 14.25 percent, near a decade high, according to a Reuters poll. The remaining analyst forecast an increase to 14.75 percent.

The decision comes as the credibility of the bank is under question following a surprise vote to maintain rates at its last meeting on Jan. 20 after strongly signaling an increase.

The bank’s monetary policy committee, known as Copom, is now hinting it will keep rates on hold for some time as it bets that the country’s worst recession in decades will curb prices later this year.

Still, inflation has remained well above the 4.5 percent center of the official target and continues to accelerate despite a recession that left 1.5 million Brazilians unemployed last year.

Annual inflation in the month to mid-February unexpectedly climbed to a 12-year high of 10.84 percent due to higher food, education and transport prices.

“Although the disappointing report on inflation may keep discussion of a rate hike alive, we continue to believe that the Copom will remain on hold in the months to come,” economists with Barclays wrote in a research note.

Although high, inflation in Brazil remains far from the triple-digit increases of the 1990s. Still, quickening inflation has hurt the approval rating of President Dilma Rousseff, the country’s least popular president since Brazil returned to democracy more than 30 years ago.

The bank’s chief, Alexandre Tombini, has said inflation has peaked and should start to drop in coming months, but ruled out market speculation that the bank could start to cut rates.

The Reuters poll shows many economists expect the bank to cut rates later this year to help the ailing economy.

Inflation expectations for 2016 dropped slightly to 7.57 percent for the first time in many weeks, according to the latest central bank weekly poll of economists published on Monday.

An increase in hydroelectric output after widespread rains in Brazil will push down electricity bills, likely bringing down inflation in coming months. (Reporting by Alonso Soto; Editing by Leslie Adler)

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