MercoPress. South Atlantic News Agency

Brazil's central bank with new chief leaves rates unchanged; policy is determined “with caution and serenity”

All indicates that the new central bank chief Roberto Campos Neto will stay the steady course set out by his predecessor

Brazil's interest rates remained unchanged on Wednesday after the central bank held its first monetary policy meeting under its new chief Roberto Campos Neto. The central bank's unanimous decision -- only the second since pro-business President Jair Bolsonaro took power in January on a promise to revive Latin America's biggest economy -- to keep rates at 6.5% was in line with market expectations.

Rates have been at the historic low for a year and the bank gave no indication of plans to cut them by any time soon despite slowing growth.

In a sign that new central bank chief Roberto Campos Neto will stay the steady course set out by his predecessor, Copom repeated a line from recent policy statements that policy is best determined with “caution, serenity and perseverance.”

In a shift from its February statement, however, Copom said that risks to inflation are symmetrical. Six weeks ago the committee said inflation risks were skewed to the upside but moderating.

“Recent data on economic activity came in below expectations,” policymakers said in their statement.

“On the one hand, the high level of economic slack may lead to a lower-than-expected prospective inflation trajectory. On the other hand, frustration of expectations regarding the continuation of reforms...may affect risk premia and increase the path for inflation over the relevant horizon,” they said

Copom has long stressed the importance of economic reforms and adjustments - the biggest of which is an overhaul of social security recently presented in Congress - to keep inflation anchored and improve the outlook for Brazil’s economy

The decision disappointed the powerful National Confederation of Industries, which issued a statement saying “the weak performance of economic activity shows that Brazil must reduce rates.”

Brazil's economy is still bearing the scars of the record recession in 2015-2016, with growth barely above one percent in the past two years. Recent economic indicators, though, show signs that recovery is softer than expected in 2019.