Brazil Monetary Council Holds Inflation Target Through 2015

Brazil is keeping its inflation target unchanged through 2015 even after consumer prices this month rose at the fastest annual pace since November 2011.

The National Monetary Council made up of central bank and government officials held its quarterly meeting today and decided to maintain the 4.5 percent midpoint of its 2.5 percent to 6.5 percent range for 2014 and 2015. It also held the long-term lending rate at a record low 5 percent, where it has remained since December.

Since inflation breached the target range in March, the central bank has increased the benchmark rate by 75 basis points in two successive meetings. Even as the price of foodstuffs has eased, inflation has been fanned by President Dilma Rousseff’s stimulus measures aimed at propping up consumer demand, and in the year through mid-June again accelerated above the target range.

“There wasn’t an alternative; the best thing at this moment was leaving the target unchanged,” Roberto Padovani, chief economist at Votorantim Ctvm Ltda, said by telephone from Sao Paulo. “Raising the target would be bad for expectations and lowering it would not be credible,”

Annual inflation has remained above the central bank’s 4.5 percent target every month since Alexandre Tombini became bank President in January 2011. Central bankers, in their quarterly inflation report released on June 27, said inflation will reach 6 percent this year should the benchmark rate remain unchanged at 8 percent, up from a March forecast of 5.7 percent.

Economists expect price increases to reach 5.86 percent at year-end, compared to their March forecast of 5.71 percent, according to a central bank survey published on June 24.

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