Brazil Keeps Key Interest Rate at Record Low 8.75%

    Brazilian Central Bank

    Brazilian Central Bank The Central Bank of Brazil (BC) kept its key Selic interest rate at a record low 8.75% and said its level was consistent with a non-inflationary recovery, signaling that no increase in borrowing costs is imminent.

    In a statement accompanying the bank's board unanimous decision to keep the benchmark rate at 8.75% repeated word-for-word the communiqué issued last September when it paused after five straight cuts this year.

    "Considering the monetary easing implemented since January and, on the other hand, the margin of idleness in economic capacity, among other factors, the committee sees this level of benchmark interest rate as consistent with a scenario for benign inflation," said the statement from Copom.

    The move was widely expected. Policymakers cut the rate five times in a row earlier this year to energize the ailing economy, shaving off a total of 500 basis points, only to pause the easing cycle at their September meeting.

    As Brazil's economy returned to growth in the second quarter after a six-month recession, analysts have begun weighing when policymakers will hike the rate as a response to inflationary pressures.

    The Brazilian central bank uses an inflation target as a guide in setting interest rates. The target for 2009 and 2010 is 4.5%, plus or minus 2 percentage points. In the 12 months to September, consumer prices in Brazil rose 4.34%, well within the target.

    Lower inflation has eased pressure on Central bank president Henrique Meirelles to consider an unpopular rate increase before deciding whether to step down in March and seek elected office.

    Meirelles, credited with taming double-digit inflation after almost seven years on the job, is facing calls from Finance Minister Guido Mantega to leave rates unchanged next year.

    Analysts expect Brazil's GDP will expand 4.8% next year, according to an October 16 central bank survey. In July they were forecasting 3.5%. Last week, the government said employers created enough jobs in the first nine months of the year to erase the almost 800.000 crisis-related layoffs.

    Brazil's unemployment rate in six major metropolitan areas dropped to 7.7% in September, its lowest level this year, from 8.1% the previous month, the national statistics agency reported this week.

    Brazil emerged from its first recession since 2003 in the second quarter as GDP expanded a faster-than-forecast 1.9% in the April-June period from the previous quarter.

    Mercopress

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