Brazil Keeps Rate Amid Persistent High Prices, Stagnant GDP

  • Move was foreseen by all analysts surveyed by Bloomberg
  • Meeting marked the debut of Goldfajn and four board members

Brazil’s central bank kept the benchmark interest rate unchanged Wednesday, matching analyst expectations as policy makers struggle to tame stubborn inflation without exacerbating a crippling recession.

Policy makers, led for the first time by their new chief, Ilan Goldfajn, held the so-called Selic rate at 14.25 percent for their eighth consecutive meeting. All 38 analysts surveyed by Bloomberg forecast the decision. Traders in the swaps market don’t expect the rate to budge until October, when they forecast the first reduction since 2012.

Goldfajn took the bank’s helm last month to confront an annual inflation rate of almost 9 percent and an economy in its worst downturn in a century. By keeping the Selic unchanged at a near-decade high, he resisted political pressure to stimulate growth with cheaper credit. Goldfajn may have learned a lesson from his predecessor, Alexandre Tombini, who saw inflation surge after he cut borrowing costs to a record low amid calls from then-President Dilma Rousseff to ease up on borrowing costs.

“The central bank is still trying to regain its lost credibility,” said Luciano Rostagno, chief strategist at Banco Mizuho do Brasil. “Sending out tougher signs of commitment to bring inflation to target and keeping rates at this level even with recession going is part of that effort.”

Many economists are optimistic Goldfajn can succeed in bringing inflation down closer to the 4.5 percent target, and expect he will have the luxury of cutting interest rates later this year. Analysts surveyed weekly by the central bank expect borrowing costs to drop by one percentage point in 2016 to 13.25 percent before reaching 11 percent next year. They also estimate the economy will rebound in 2017 following the deepest recession in Brazil’s history.

Many Firsts

Goldfajn kicked off his tenure as central bank chief on several different notes. He started Wednesday’s gathering two hours earlier than his predecessor, and announced the rate decision online.

The central bank’s chief spokesman had traditionally unveiled the new rate live to reporters in Brasilia. Policy makers will publish minutes to the meeting on Tuesday next week, rather than Thursday as was the norm.

Goldfajn, 50, has said repeatedly since taking office that he aims to bring inflation to the official target next year. His comments have caused swap rates to rise, as traders bet he would delay rate cuts until inflation eases further.

Inflation moderated to 8.8 percent last month from a more than 12-year high of 10.71 percent at the start of the year. Analysts surveyed weekly by the central bank forecast it will continue falling, though they expect it to close this year and next above target.

Policy makers are receiving some help from the Brazilian real, whose 22 percent appreciation against the U.S. dollar this year has reduced the price of imports.

After taking over Brazil’s top job in May, Acting President Michel Temer pledged to put Brazil’s recession-battered economy back on track.

He has made some progress, as consumer and business confidence are on the rise and the country’s main stock index has become the world’s top performer this year. Challenges remain, however, as the economy continues to shed jobs every month and gross domestic product shows no signs of growing following five straight quarterly contractions.

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