Brazil’s outgoing central bank board sees no room for bringing down one of the highest benchmark interest rates in the world even as it forecasts Latin America’s largest economy to accelerate in coming months.
In the minutes to its June 7-8 rate decision, the board used language from previous statements in which it recognizes advances in combating inflation and foresees the economy picking up, but considers that high inflation and expectations above target "don’t offer room for more flexible monetary policy."
The central bank board, led for the last time by Alexandre Tombini, kept the benchmark interest rate unchanged at 14.25 percent for the seventh-straight gathering last week, as forecast by all 41 analysts surveyed by Bloomberg. Acting President Michel Temer’s nominee to replace Tombini, Massachusetts Institute of Technology-trained economist Ilan Goldfajn took office this week.
Analysts interpreted Tombini’s stance as an attempt to smooth the handover to Goldfajn, 50, who now inherits inflation running at almost double digits and an economy projected to bounce back to 1 percent growth next year after the worst recession in decades. In his first speech on the job, Goldfajn pledged to hit the 4.5 percent center of the inflation target, while nominating new members to the board that include academics and a banker from the private sector. They still need Senate confirmation.
The inflation target has eluded the central bank for the past six years and will continue to do so this year and next, according to analysts surveyed weekly by the central bank. They see consumer prices rising 7.2 percent in 2016 and 5.5 percent in 2017, which would be the lowest year-end inflation rate since 2009.
Temer’s finance ministry has already announced proposals that may help in the inflation fight, such as a cap on public spending that must be approved by a two-thirds majority in Congress. The minister, Henrique Meirelles, says he’s not considering tax increases for now.