MercoPress. South Atlantic News Agency

Brazilian interest rates forecasted to remain unchanged until end of 2009

Henrique Meirelles, chairman of Brazil’s Central Bank

Brazil’s monetary policy makers said the benchmark interest rate (8.75%) is at a level that will spur economic growth without sparking inflation, signalling that they are prepared to keep borrowing costs unchanged through the end of the year.

“The benchmark interest rate is consistent with a benign inflationary outlook, helping to guarantee the convergence of inflation over the meaningful horizon to its targets as well as with a non-inflationary recovery of economic activity,” according to the Central Bank minutes from the July 21-22 meeting.

On July 22 the bank cut the overnight rate for a fifth straight time to a record 8.75% from 9.25%. After full-point cuts at all four previous meetings this year the policy makers slowed the pace of rate reductions “as the economy recovers”, according to statements from Henrique Meirelles, chairman of the bank.

The minutes also pointed out that consumer prices in 2009 will be in the range of the 4.5% annual target. “Monetary policy needs to maintain a cautious stance, seeking to ensure inflation converges toward its target”.

Finance Minister Guido Mantega commenting on the latest data said that Brazil’s GDP will expand 4% in the next twelve months (to June 2010) spurred by lower interest rates, tax cuts and increased government spending.

Analyst expect the bank to keep the rate unchanged through out the year, according to the median forecast in a July 24 central bank survey of about 100 economists. They forecast the bank will increase the overnight rate to 9.25% by December 2010.

Brazil’s GDP contracted 0.8% in the first quarter of 2009 from the previous three months, after contracting a record 3.6% in the last quarter of 2008. The central bank expects 2009 GDP growth of 0.8%.

The Central Bank has slashed the benchmark interest rate from a two-year high of 13.75% in December and injected about 100 billion US dollars into money and currency markets to boost loans to companies and consumers amid the global credit crunch.

The government has also increased public spending amid falling revenue in a bid to shore up the economy.