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LATIN AMERICA | 04-05-2023 11:11

Brazil holds interest rate, citing 'resilient' inflation

Brazilian Central Bank resists pressure from President Lula to trim interest rates and announces hold for six straight time.

Brazil's Central Bank held its key interest rate steady for the sixth straight time Wednesday, despite pressure from President Luiz Inácio Lula da Silva for a rate cut to kick-start Latin America's biggest economy.

Citing "resilient" inflation and an "external environment that remains adverse," the bank's monetary policy committee said it had decided to leave the benchmark Selic rate at 13.75 percent.

The decision, which was in line with market expectations, came on the same day the US Federal Reserve raised its key rate by a quarter-point – the latest sign the world's main central banks are not yet ready to take the brakes off monetary policy as they battle to curb inflation.

Brazil's Central Bank called for "patience" as it kept its key rate at a more than six-year high. It showed no sign its stance would change by its next meeting, scheduled for June 20 and 21.

"Considering the uncertainty around its different scenarios, the [Central Bank's monetary policy] committee remains vigilant," it said in a statement.

"It will persevere until not only the inflation rate but market expectations have consolidated around its target. The committee believes the situation calls for patience and serenity."

Brazil's annual inflation rate came in at 4.65 percent for March, returning within the Central Bank's target range – currently 1.75 to 4.75 percent – for the first time since January 2021.

But the bank, which has waged one of the most hawkish anti-inflation campaigns in the world since starting its current tightening cycle two years ago, continued to warn surging prices were not yet under control.

 

Clashes with Lula

Lula has called Brazil's key interest rate "absurd," urging a cut to boost the economy and openly clashing with Central Bank chief Roberto Campos Neto.

The bank's monetary policy committee said uncertainty over the Lula administration's spending plans was one of the factors in its decision.

Fearing a recession after Brazil's sluggish economy contracted 0.2 percent in the fourth quarter of 2022 – the last under far-right ex-president Jair Bolsonaro – the veteran leftist is pushing for an interest-rate cut to help spur growth. 

Analysts polled by the Central Bank are currently predicting Brazil's economy will grow one percent in 2023, with inflation of 6.05 percent for the year.

Market expectations are for the bank to start easing the interest rate from September, according to the its weekly poll.

Haunted by a history of hyperinflation, Brazil has aggressively raised its key interest rate from an all-time low of two percent since inflation started to surge worldwide in early 2021, fueled by the effects of the Covid-19 pandemic and then Russia's invasion of Ukraine.

Brazil currently has the world's highest real interest rate – subtracting – according to São Paulo investment firm Infinity Asset.

 

 

– TIMES/AFP

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