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Brazil central bank admits interest policy has not been effective in fighting inflation

Friday, March 13th 2015 - 11:28 UTC
Full article 5 comments
The bank said that despite credit being more expensive due to higher rates, domestic demand will remain “moderate” and household consumption should “stabilize.” The bank said that despite credit being more expensive due to higher rates, domestic demand will remain “moderate” and household consumption should “stabilize.”
The Selic benchmark interest rate was increased to its highest in six years last week, (12.75%), maintaining the aggressive pace of monetary tightening to control inflation. The Selic benchmark interest rate was increased to its highest in six years last week, (12.75%), maintaining the aggressive pace of monetary tightening to control inflation.

Brazil's Central Bank appears likely to continue raising interest rates in the short-term, saying in its most recent meeting that its inflation-fighting effort in recent months has been insufficiently effective. The view was reflected in the minutes, published on Thursday, of its monetary policy committee's March 4 meeting, when the bank raised its benchmark Selic interest rate by 50 basis points to 12.75%.

 That marked the bank's fourth consecutive rate hike, but despite those moves the annual inflation rate rose in February to 7.7%, its highest level since 2005. The minutes, however, said there is a stronger possibility of Brazil meeting its inflation target of 4.5% in 2016.

The Central Bank said that, despite credit being more expensive due to higher interest rates, domestic demand will remain “moderate” and household consumption should “stabilize.”

Likewise, the monetary authority said the economic climate is conducive to investment, citing, among others reasons, relatively favorable financial conditions in sectors such as real estate and agriculture.

Brazil's central bank sees inflation quickening in 2015 despite its aggressive interest rate hikes, but sees higher chances of prices easing back toward the target in 2016, the bank said in the minutes of its last rate-setting meeting released on Thursday.

The central bank raised its benchmark Selic interest rate to its highest in six years last week, maintaining the aggressive pace of monetary tightening to control a surge in inflation.

In the minutes, the central bank removed previous reference to inflation entering a period of long decline in 2015.

Meanwhile the Brazilian Real resumed its weakening trend late on Thursday, with the currency closing 1% lower (3.1660 to the US dollar) after posting gains of more than 1% right after markets opened.

The Real was unable to benefit from the respite in global foreign exchange markets as investors worried about President Dilma Rousseff's ability to pass fiscal austerity measures at a time when her popularity is dropping and her Congress coalition is weakening. Without fiscal adjustments, Brazil risks additional downgrades of its sovereign credit rating in the next few months.

Categories: Economy, Politics, Brazil.

Top Comments

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  • ChrisR

    “Brazil central bank admits interest policy has not been effective in fighting inflation” !!!!!!

    The hell it hasn't and the reason is very simple to understand: there is NO cohesive fiscal policy in place in Brazil.

    Various ad-hoc attempts to paper over the cracks and direct actions that can only end in tears [remember DumbAss instructing the banks to loan to deadbeats OR ELSE?] have all done the damage anybody with half-a-brain could have predicted.

    Where has fucking with Mr. Market got you DumbAss? Exactly where I predicted it would with Mr. Market fucking YOU (and unfortunately the country as well - as anticipated).

    Childish actions from the Rulers of SA: why does nothing ever change?

    Mar 13th, 2015 - 06:43 pm 0
  • Brasileiro

    Never will change on their own. Our America is that transforms us, not us to it.

    Burro demais!

    Mar 13th, 2015 - 09:59 pm 0
  • Bisley

    Inflation is the increased supply of money and credit produced out of thin air by governments and the banking industry (usually to cover government borrowing). It's would be simple enough to stop it, but they aren't going to; it's easier to lie, and blame it on something else.

    Mar 13th, 2015 - 10:12 pm 0
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