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Brazil central bank keeps interest rate on hold at 6.5%

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Brazil's central bank kept its benchmark interest rate unchanged Wednesday at 6.5 per cent, in its first meeting since far-right President-elect Jair Bolsonaro was elected with a pledge to slash government spending.

[BRASÍLIA] Brazil's central bank kept its benchmark interest rate unchanged Wednesday at 6.5 per cent, in its first meeting since far-right President-elect Jair Bolsonaro was elected with a pledge to slash government spending.

In a unanimous vote, the bank's monetary policy committee decided to keep the Selic interest rate at its historic low for the fifth straight time, in line with analysts' expectations, against a backdrop of weak growth and low inflation.

At 4.53 per cent, inflation is currently near the middle of the bank's target range of 2.5 to 6.5 per cent, and Sunday's election win by debt hawk Bolsonaro further bolstered the argument to keep the rate on hold.

Mr Bolsonaro was the market favourite, and his march to the presidency has also helped the Brazilian real strengthen against the dollar, reducing upward pressure on prices in the world's eighth-largest economy.

The bank did not mention the election in its statement, saying only that future rate moves "will continue to depend on the evolution of economic activity, the balance of risk and inflation projections."

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It said the biggest risks facing Brazil are abandoning the budget-cutting reforms launched by outgoing President Michel Temer, or a downturn in external conditions for emerging markets.

The bank had previously cut the rate 12 times straight, before pausing in May.

"The fact Bolsonaro is already talking about reforms is a good sign," said economist Victor Candido of Guide Investimentos.

In his first interviews as president-elect, Mr Bolsonaro said he hoped to start passing "at least part" of his proposed pension reform this year.

Markets are keenly watching efforts to overhaul the bloated pension system, which have stalled because of the political cost.

Mr Bolsonaro's top economic adviser, liberal economist Paulo Guedes - tapped to head an economy "super ministry" in his government - vowed immediately after the election to cut spending, privatise state enterprises and whip the government's books into shape.

After tumbling into a record recession from 2015 to 2016, Brazil's economy is forecast to grow about 1.4 per cent this year.

AFP

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