Economy one hour ago (Sep 21, 2022 07: 36PM ET)
Reuters. People walk in the front the Central Bank headquarters building in Brasilia, Brazil March 22, 2022. REUTERS/Adriano Machado
By Marcela Ayres
BRASILIA (Reuters) -Brazil’s central bank on Wednesday thought we would keep interest levels unchanged, pausing an aggressive monetary tightening cycle even while U.S. and European policymakers remain racing to meet up with inflation.
The bank’s rate-setting committee, referred to as Copom, decided by way of a vote of 7-to-2 to leave its benchmark Selic interest at 13.75% after 12 consecutive increases, needlessly to say by 24 of 32 economists polled by Reuters.
With that, policymakers likely ended what have been the world’s most aggressive rate-hiking cycle, lifting the Selic rate from the record-low 2% in March 2021 and putting Brazil before many central banks that only started raising rates recently.
The Federal Reserve delivered its third straight big rate increase on Wednesday and flagged another along the way this season.
Brazil’s central bank made a decision to stop hiking rates after consumer prices registered their second straight monthly drop in August, helped by tax cuts on fuel and energy.
Still, Copom’s split decision, with two committee members voting for a “residual” interest increase of 25 basis points, underscored lingering concerns about inflation, which hit a nearly 20-year saturated in Brazil just a couple months ago.
“The Committee reinforces that future monetary policy steps could be adjusted and can not hesitate to resume the tightening cycle if the disinflationary process will not proceed needlessly to say,” policymakers wrote within their decision statement.
Jos Francisco Gonalves, chief economist at Banco Fator, said even while the majority of the committee voted to carry rates, their statement leaving the entranceway available to resuming rate hikes sent an obvious message about staying vigilant to price pressures.
“The hawkish message somewhat replaces the 25-basis-point increase we were expecting,” he said.
In an email to clients, he predicted the yield curve should adjust on Thursday to reflect interest levels only starting to fall in the fourth quarter of 2023.
Others have bet on the central bank loosening policy sooner, including Economy Minister Paulo Guedes, who predicted rate cuts in early 2023.
However, central bank directors took a harsher tone in recent public comments, stressing it really is too early to start out discussing lower rates because the struggle with inflation isn’t done.
Copom’s 2023 inflation forecast was unchanged from last month, at 4.6% in Wednesday’s statement, and its own 2024 outlook rose to 2.8%, from 2.7% earlier, against a 3% official target.
Twelve-month inflation in Brazil ran into double digits from September 2021 to July, experiencing a post-pandemic rebound in services demand and soaring food and fuel costs following the war in Ukraine.
The central bank forecast for inflation this season fell to 5.8%, from 6.8% last month, still far above the 3.5% target, with a tolerance margin of just one 1.5 percentage points on either side.