Brazil Leaves Basic Rate at 10.75%, Hinting It Will Go Up in January

Alexandre Tombini Brazil kept it benchmark overnight banking rate unchanged after curbs on credit allowed central bank President Henrique Meirelles to leave anticipated rate increases for his successor. 
Policy makers including Alexandre Tombini, who is slated to succeed Meirelles next month, voted unanimously to keep the Selic rate unchanged at 10.75%.

The eight-member board, in a statement, said they faced a “less favorable scenario” than in their last meeting, though they needed “more time” to gauge the economic impact of new reserve requirements on banks to curb the growth of credit.

Traders are betting the Brazilian central bank will raise borrowing costs by a half-point at its next meeting in January. About 100 economists in a central bank survey published December 3 said they expect a half-point increase in January. The next Monetary Committee, Copom, is scheduled for January 18/19.

The Central bank release said that taking into account the current macro-economic situation and inflation prospects, Copom unanimously decided to keep the Selic rate at 10.75%. Given a less favorable scenario than that of the last meeting but taking into account that because of credit and liquidity conditions – the Central bank recently introduced ‘macro-prudential’ measures – the prevailing feeling among members of the Committee was that additional time was needed to better gauge the effects of those initiatives on the monetary conditions.

To that respect, the Committee agreed it was not the right time to re-evaluate in this meeting the monetary policy strategy and will follow closely the evolution of the macroeconomic scenario in the next meeting and then define the following steps regarding its monetary policy strategy.

The world’s eighth-largest economy will grow 7.54% this year, its fastest pace in more than two decades, according to the most recent central bank survey. GDP likely expanded 0.4% in the third quarter from the previous three months.

Retail sales grew 11.8% in the year through September, the fastest pace since March. Unemployment fell to a record low 6.1% in October. Domestic demand, buoyed by consumer lending growing at a 20% annual pace, is fueling an acceleration of inflation.

Consumer prices in Brazil, as measured by the benchmark IPCA index, rose 5.63% percent in November from a year earlier and 0.83% from October, the biggest monthly increase since April 2005.

Inflation expectations for 2011 have accelerated to 5.2%, from 4.8% in August and 4.5% in March, according to the central bank survey.

Tombini, who has been on the bank’s board since 2005, won Senate committee approval on December 7 to be the bank’s next president. At his confirmation hearing he echoed remarks made by Meirelles that higher reserve levels would have an impact on the economy, even though they aren’t a substitute for traditional monetary policy tools.

President-elect Dilma Rousseff has pledged to contain spending next year in a bid to reduce Brazil’s real interest rate, the highest in the Group of 20 nations.

Higher borrowing costs are also putting pressure on the real, as investors buy higher-yielding currencies with funds borrowed at lower rates. The teal, which is the best performer among 16 major currencies tracked by Bloomberg over the past month, weakened 0.5% to 1.6903 per U.S. dollar Tuesday.

Mercopress

Tags:

You May Also Like

Before Ending US Tour in NY, Brazil’s Sepultura Will Crisscross Country

Brazilian/American metal band Sepultura will be in New York for one show on Monday, ...

Santa Catarina, Brazil, Boosts by 28% Exports to Mercosur

Santa Catarina, a state in the South of Brazil, has increased its exports to ...

Jimmy Carter in Brazil Gets Medal and Asks More Transparency

Nobel Peace Prize winner and former US president Jimmy Carter was honored Sunday, May ...

After Scuffle for Posts Brazil Halts Nominations in Government

The idea is to try to halt political party disputes for posts in the ...

Brazil Expecting Biggest Harvest Ever Led by Soy, Corn and Cotton

Brazilian farmers should produce 126 million tons of grain in the 2006-2007 crop, according ...

43.7% of Brazilian Jobs Go to Women, a Slight Growth

Women’s participation in the Brazilian labor market increased in the country’s six major metropolitan ...

US Military Presence in Colombia a Threat to Brazil and the Amazon

 The second half of this year has begun with difficulties here in Latin America. ...

Brazil: Local Populations in the Amazon Start Large-Scale Timber Management

The Tapajós National Forest (Flona) will be Brazil’s first national forest in which the ...

Major Brazilian Dairy Company Starts US$ 30 Million Venture in Uruguay

Laticinios Bom Gosto, a major Brazilian dairy corporation, will begin to build its affiliate ...

Brazil Market Sputters Ahead

Brazilian and Latin American markets were in the black, but pulled back from earlier ...