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Brazil's central bank to continue increasing rate, with inflation on target at the end of 2016

Friday, May 8th 2015 - 07:48 UTC
Full article 2 comments
Central bank director Luiz Awazu Pereira said secondary effects 'should be limited to 2015', the first time the bank acknowledged it in the minutes. Central bank director Luiz Awazu Pereira said secondary effects 'should be limited to 2015', the first time the bank acknowledged it in the minutes.
The bank made clear that inflation would only hit the target by the end of next year, and admitted efforts to slow price increases remained “insufficient.” The bank made clear that inflation would only hit the target by the end of next year, and admitted efforts to slow price increases remained “insufficient.”

Brazil's central bank expects inflation to run above the official target this year and next, despite months of monetary tightening, signaling policymakers could maintain an aggressive pace of interest-rate hikes to lower stubborn prices. In the minutes of its April 29 rate-setting meeting, the bank said it would remain vigilant to ease persistently high inflation.

 Last week, the central bank raised the benchmark Selic rate by 50 basis points for the fourth straight time to 13.25%. The bank is under pressure to tighten policy to ease high inflation and recoup its credibility, but on the other hand, more rate hikes could end up further slowing activity in a recession-bound economy.

In the minutes, the bank made clear that inflation would only hit the target by the end of next year, and again acknowledged in the minutes its efforts to slow price increases remained “insufficient.”

Before the meeting the bank said it aimed to ease inflation toward the 4.5% center of the target throughout 2016.

The bank said monetary policy should aim to contain the effects of higher government-controlled prices and a weaker Real currency on inflation this year. Central bank director Luiz Awazu Pereira recently said secondary effects should be limited to 2015, but it is the first time policymakers have acknowledged that in the minutes.

Yields in Brazilian interest rates futures contracts rose on Thursday, signaling that traders expect policymakers to keep raising the Selic.

The bank “is now clearly more focused and forthcoming in the quest of driving inflation to the target, and less concerned with or distracted by the real sector and labor market dynamics,” Alberto Ramos, senior economist with Goldman Sachs in New York said in a note.

Before the release of the minutes, economists agreed the bank will likely hike rates by 25 basis points in June before ending the hiking cycle, according to a central bank survey of economists.

Categories: Economy, Politics, Brazil.

Top Comments

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  • ChrisR

    “but on the other hand, more rate hikes could end up further slowing activity in a recession-bound economy.”

    At last! The economy is already going downbank just like an argie sub, never to be seen again and he wants to keep slamming on the brakes: does anybody in SA understand simple economics?

    I think the answer is no.

    May 08th, 2015 - 12:03 pm 0
  • yankeeboy

    Forbes is saying the Brazilian “Miracle” was nothing more than a mirage.

    Inflation is at 8 going to 9% and the drought is going to mean they have to import more fuel since they rely heavily on Hydro electric. Plus everyone is afraid to do business and not get caught up in the PBR scandal. I think more big bankruptcies are on the way.

    The future is not too bright for Brazil until they get rid of Dilma and Lula.

    May 09th, 2015 - 10:42 am 0
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