By Dow Jones Business News, March 06, 2013, 07:13:00 PM EDT
--Brazil holds key interest rate at all-time low 7.25%
--Brazil central bank has held Selic rate unchanged since October
--High inflation, slow growth bring doubts about move to tightening
By Gerald Jeffris
BRASILIA--Brazil's central bank on Wednesday left its benchmark interest rate unchanged but signaled it may be ready
to raise rates if inflation continues at a worrisome pace.
The bank's rate committee Wednesday held the country's Selic interest rate steady at a record low of 7.25% for a fifth
In a brief statement, the committee said it decided to keep rates steady after "evaluating macroeconomic conditions
and the outlook for inflation."
"The comittee will accompany the evolution of the macroeconomic environment until its next meeting, to then define the
next step in its monetary policy strategy," the statement concluded, eliminating a key phrase present in previous rate
decision statements, which said that by keeping the Selic steady for a "sufficiently prolonged period," inflation would
converge to the bank's target.
Officials, including Finance Minister Guido Mantega and Central Bank President Alexandre Tombini, have been laying the
groundwork for a possible reversal in monetary policy in recent weeks, with statements denying the use of foreign-
exchange policy to influence prices in the economy and reinforcing the central bank's role in curbing inflation.
Brazil's IPCA consumer price index accelerated to 6.18% in the 12 months through mid-February, compared with 6.02%
through the previous month. Brazilian inflation has crept steadily higher since the fourth quarter of last year, amid
the impact of high food prices, coming ever closer to the 6.5% upper limit of the country's inflation-targeting band.
The government, however, is in a quandary over how to manage rates in a situation of sluggish economic growth, after
the country's economy expanded by a disappointingly low rate of only 0.9% in 2012.
The change in language in the central bank's decision, meanwhile, was widely expected by analysts, who said monetary
authorities may want to "buy some time" before raising rates.
"If inflationary pressures are indeed temporary, as argued by the central bank, or if economic growth proves to be
more elusive than expected, the bank could hold rates for longer; otherwise, it would reassess meeting-by-meeting costs
and benefits of engaging in a monetary tightening," said Banco Santander economist Mauricio Molan in a note this week.
However, others note that, with inflation pushing the upper limit of the targeting band, the central bank may not have
the luxury of waiting much long to raise rates before compromising its inflation-fighting credibility.
"We believe the BCB is preparing the market for the initiation of a tightening in policy in coming months," said Nick
Chamie, global head of foreign-exchange strategy and emerging-markets research at RBC Dominion Securities. "We expect
this [rate decision] to be followed up by three consecutive 25-basis-point rate hikes at the April, May and July
Despite lingering disagreements over the pace of possible rate increases, the call for rising rates in coming quarters
appears to have been priced in to the expectations of most investors. According to a central bank market survey released
this week, the country's Selic rate is seen rising to about 8.25% by the end of 2014.
Brazil's central bank will release the minutes of Wednesday's rate meeting on March 14. Its next monetary policy
announcement is scheduled for April 17.
Write to Gerald Jeffris at email@example.com
--Paulo Winterstein contributed to this report.
(END) Dow Jones Newswires
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