Loading ...News - Brazil Central Bank Halts Easing at Record Low Rate
Sept. 2 (Bloomberg) — Brazil’s central bank kept borrowing costs unchanged today as its board gauges how five benchmark interest rate cuts this year will stoke economic growth.
Policy makers voted unanimously to maintain the benchmark rate at 8.75 percent, without a bias, matching the forecast of 49 of 50 analysts surveyed by Bloomberg. The eight-member board led by central bank President Henrique Meirelles had lowered the so- called Selic rate by at least a half percentage point at each of its five meetings this year.
The monetary committee, repeating almost identically the statement accompanying its previous decision July 22, said the current rate will help ensure inflation stays near the central bank’s target of 4.5 percent, plus or minus two percentage points.
The lending rate is “consistent with a benign inflationary outlook, helping ensure the conversion of inflation toward the target, in a meaningful horizon, as well as a non-inflationary recovery of economic activity,” policy makers said.
Latin America’s biggest economy has rebounded from its first recession since 2003, powered by local demand. Industrial production expanded in the past seven months, companies resumed hiring and retail sales have returned to pre-crisis levels. Gross domestic product, after contracting in the last quarter of 2008 and first quarter this year, will grow 1.5 percent in the second quarter from the first quarter, according to BNP Paribas.
Fueling Growth
“Central bankers have made it very clear that the interest rate at its current level will continue to fuel economic growth without creating inflationary pressure,” said Maristella Ansanelli, chief economist at Banco Fibra SA, in a telephone interview from Sao Paulo before the central bank’s decision.
Meirelles will probably keep rates unchanged through the end of 2010 as there is little chance of stoking inflation while economic growth recovers gradually, Ansanelli said.
Still, traders expect interest rates to rise to 9.4 percent by April 2010, according to estimates based on overnight interest rate-futures contracts, even as inflation is forecast to remain below the government’s target until 2011, according to a central bank survey.
Industrial output rose 2.2 percent in July from June, its biggest gain in more than a year, as lower rates, tax cuts and increased government spending helped stimulate activity. GDP may shrink 0.3 percent this year before rising 4 percent in 2010, according to the central bank survey of economists taken Aug. 28.
Loans Outstanding
Total outstanding loans rose 2.6 percent to a record 1.31 trillion reais ($688.2 billion) in July, the fastest monthly expansion since October. Lending climbed 20.8 percent from the same month last year.
“It doesn’t make sense anymore to keep both the fiscal and monetary arsenal on full fire,” said Alvise Marino, an emerging market analyst at IDEAglobal in New York.
Marino said he expects the bank will raise rates during the middle of next year. Analysts forecast the Selic will reach 9.25 percent by the end of 2010, according to the central bank survey.
Such forecasts seem to contradict the current inflationary outlook, said Thais Marzola Zara, an economist at Sao Paulo- based Rosenberg & Asociados. Benign consumer price increases will take the pressure off policy makers to raise rates, she said.
Inflation Rate
Annual inflation, as measured by Brazil’s IPCA index, slowed to 4.5 percent in July, the lowest since December 2007 and compared with 5.8 percent in January. The IGP-M price index, a gauge of wholesale prices by which costs for home rentals and utility rates are adjusted, turned negative in July for the first time since 2006.
Meirelles slashed the benchmark interest rate from a two- year high of 13.75 percent in January and injected about $100 billion into money and currency markets to boost loans to companies and consumers amid the global credit crunch.
The government has also lowered taxes on cars and electronics, pushing retail sales 1.7 percent higher in June from May, more than was forecast by economists.
The gains may be short-lived as the positive impact on growth from the stimulus runs out, said Carlos Thadeu de Freitas, chief economist at SLW Asset Management. He is forecasting interest rates will be a quarter point to half point lower at the beginning of 2010, as Chinese demand for commodities slows.
“There’s a lot of one-time events that won’t be repeated, like people pushing up the purchase of cars to take advantage of tax breaks,” Freitas said.
Source: Bloomberg.
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