MercoPress. South Atlantic News Agency

Brazil keeps benchmark interest rate at 10.75% in spite of inflation peak

Mid-month inflation doubled that of September

Brazil’s central bank kept its benchmark overnight rate unchanged Wednesday as policy makers gauge whether a peak in inflation is temporary. The policy committee, led by bank President Henrique Meirelles in a unanimous decision, left the rate at 10.75% for a second straight meeting.

A report released Wednesday showed that October’s mid-month inflation rate doubled from September, led by the second-biggest jump in food prices in 27 months. Prices as measured by the IPCA-15 index rose 0.62%, driven largely by a 1.7% rise in food costs, taking the annual inflation rate to 5.03%. The bank targets inflation of 4.5% plus or minus two percentage points.

“Assessing the macro-economic outlook and inflation perspectives, the Copom decided, unanimously, to maintain the Selic rate at 10.75% a year, without a bias,” policy makers said in a statement accompanying their decision.

Brazil’s economic activity index, a proxy for GDP, levelled off in August. Seasonally-adjusted economic activity was little changed at 139.12 points in August, down from a revised 139.13 points in July, the central bank said on its website.

Analysts predict the central bank will raise the Selic rate to 11.25% in April, and then to 11.75% in June according to the median forecast of about 100 economists in an Oct. 15 central bank survey.

Policy makers held the benchmark rate at 10.75% at their Aug. 31-Sept. 1 meeting, after raising it 200 basis points this year from a record low 8.75%.

The central bank estimates the world’s eighth-biggest economy will grow 7.3% this year. Retail sales rose a faster-than-forecast 2% in August from a month earlier, fuelled by credit growth and record-low unemployment.

In the first eight months of 2010, Brazil attracted a net 34.6 billion US dollars into its bond and stock markets, more than double last year’s total and the most since the central bank began collecting the data in 1995.