MercoPress. South Atlantic News Agency

Brazil leaves rate unchanged at 14.25%; stubborn inflation despite recession

The bank's new governor Ilan Goldfajn, who took office in June, warned of lingering risks to reaching that goal, including the persistently high inflation

Brazil's central bank, with its recently appointed president, kept interest rates on hold for the eighth consecutive meeting on Wednesday as expected, despite a deep recession, as the new board cited concern about stubbornly high inflation and uncertainty surrounding economic reforms.

 In a longer and more detailed decision statement than in the past, the central bank said its nine-member board voted unanimously to leave the benchmark Selic rate at 14.25%, a nearly 10-year high. The rate has remained unchanged for a year.

“Taken together, the basic scenario and current balance of risks indicate there is no room to flexibilize monetary policy,” read the statement, released online shortly after the policy meeting ended.

The bank's new governor Ilan Goldfajn, who took office in June, is aiming to improve communication and recover the credibility of a central bank that has failed to hit the 4.5% center of its official inflation target since 2010. In a statement that differed greatly from the laconic ones of the recent past, the bank said its own 2017 inflation forecast had dropped to the target of around 4.5%, (with a two percentage points tolerance) from a previous reading of 4.7%.

However it warned of lingering risks to reaching that goal, including the possibility that persistently high inflation (food, and some indexed administrative prices) could increase future expectations for sustained price rises.

Economists were divided on whether the bank could cut rates as soon as its next meeting in late August or wait until October. Minutes of Wednesday's monetary council meeting will be released next Tuesday.

Most emerging-market economies, including recession-hit Russia and China, are forecast to either cut rates or keep monetary policy loose as the world economy continues its long and sluggish recovery.

The central bank said uncertainty about the interim government's capacity to approve bold austerity measures and persistently high short-term inflation could complicate 0efforts to reach its inflation goal next year. Inflation in the last twelve months to June was 8.84% down from 10.71% in January.

Brazil's fiscal deficit stood at 10.08% of GDP in May, up from 2.6% in May 2013.