MercoPress. South Atlantic News Agency

Brazil's central bank expected to keep current pace of interest rate increases

“Monetary policy must remain especially vigilant”, officials said in the bank minutes

Brazil's central bank said its current pace of interest rate increases remains appropriate to rein in consumer prices, repeating language it used to justify previous half-percentage-point increases, according to the November 26/27 minutes released on Thursday.

 The Monetary committee, Copom, led by President Alexandre Tombini, voted unanimously on Nov. 27 to raise the benchmark Selic rate to 10% from 9.5%, marking the fifth straight 50 basis-point increase.

“Monetary policy must remain especially vigilant”, officials said in the minutes.

The central bank has raised borrowing costs by 275 basis points since April as the local currency Real dropped the most among major currencies in the past six months and deteriorating fiscal accounts sparked investor concern over a credit downgrade.

“This is going to dash any hopes that the central bank will call an immediate halt to interest rate hikes,” Neil Shearing, chief emerging markets economist at Capital Economics said.

“The central bank’s concerns are about loose fiscal policy and high inflation.”

The Real gained 0.4% to 2.3800 against the US dollar on Thursday but has weakened 10.6% in the past six months.

Inflation remains resistant and the “Copom considers that continuity of the rhythm of monetary policy adjustments currently under way is appropriate,” the central bank said in the minutes. The international economic scenario and Brazil’s fiscal situation will influence policy makers in their Jan. 14-15 rate decision.

Brazil’s nominal budget deficit in October was the widest on record for the month, and its primary budget surplus, which excludes interest payments, fell to 1.4% of GDP in the year through October, short of the 2.3% target for 2013.

Brazil's economy contracted 0.5% in the three months through September from the previous quarter, the biggest drop in four years, the national statistics agency IBGE said earlier this week, but industrial production in October grew faster than expectations.