Brazil holds Selic rate steady despite inflation

By Ana Nicolaci da Costa, Reuters

BRASILIA–Brazil’s central bank kept benchmark borrowing costs steady on Wednesday for a second consecutive meeting even as inflation in Latin America’s largest economy gains steam. Policymakers left the Selic rate unchanged at 10.75 percent as expected by all analysts in a Reuters survey. In September, the bank put an end to a 200-basis-point cycle of monetary tightening that began in April. “After evaluating the macroeconomic scenario and the prospects for inflation, the Copom decided unanimously to hold the Selic rate at 10.75 percent, with no bias,” the central bank said in a statement explaining the decision. Brazil, which is battling a surge in its currency against the U.S. dollar, held interest rates steady even as its economy is set to expand at the fastest pace in more than two decades. Other big emerging markets such as China and India have begun raising interest rates to curb growth and inflation. All 20 analysts polled by Reuters expect the central bank to keep the Selic rate on hold through the end of the year. The central bank has kept the door open for an eventual rate hike if a rise in food prices spreads to the rest of the economy.

The bank’s brief statement on Wednesday did not mention, as in comments in the previous policy meeting and in the bank’s quarterly inflation report on Sept. 30, that it sees reduced risks to the inflation outlook and that price pressures were temporary. The decision also came after data on Wednesday that showed inflation for the month through mid-October rose a larger-than-expected 0.62 percent. That could add pressure on policymakers to raise rates in the future.

“The central bank has given very dovish signs recently so I do not believe that this number today will alone make any difference for today’s rate decision,” said Marcelo Carvalho, chief Latin American economist at BNP Paribas in Sao Paulo. But he said the central bank should do something to tackle “significant” price pressures.