Brazil central bank holds interest rates at 6.5%

[RIO DE JANEIRO] Brazil's central bank held fire on interest rates Wednesday despite lackluster growth in Latin America's biggest economy and uncertainty over President Jair Bolsonaro's ability to push through a much-needed pension reform.

In a unanimous decision the bank kept the key Selic rate, its main instrument for controlling inflation, at the historic low of 6.5 per cent. That is unchanged since March 2018.

The bank expects the rate to stay at that level for the rest of the year, but flagged a possible rise to 7.5 per cent in 2020, according to a statement released after its meeting.

The government's proposed overhaul of Brazil's unsustainable pension system, which Bolsonaro has warned would bankrupt the country if the changes are not adopted, is seen as crucial to the president's chances of making good on his other promised economic reforms.

A parliamentary committee is currently scrutinising the bill which analysts fear could be diluted after it sparked heated debate in the Congress.

Brazil's commodities-driven economy, which is still struggling to recover from a record 2015-2016 recession, is expected to expand by 1.49 per cent this year, according to a recent central bank survey of economists.

That would be only slightly faster than the 1.1 per cent growth recorded in 2017 and 2018.

AFP