Brazil keeps rates on hold in bid to ease inflation

[BRASILIA] Brazil's central bank left interest rates at a near 10-year high on Wednesday in a bid to ease inflation in what could be the current board's last decision ahead of a likely change in government.

The bank's board, known as Copom, unanimously voted to keep its benchmark Selic interest rate at 14.25 per cent for the sixth straight time as widely expected by economists and traders. At its last meeting, two of the eight members of the bank's board voted to raise rates by 50 basis points.

A recent slowdown in inflation had raised pressure on the central bank to cut some of the world's highest interest rates to ease the pain from what is the country's worst recession in a century.

Still, the bank signaled rate cuts were not yet imminent.

"High twelve-month inflation and inflation expectations far from the official targets offer no room for the easing of monetary policy," the bank said in its decision statement.

The bank completely changed its statement when compared to that of its previous meeting, saying it has had some progress in controlling inflation.

Analysts interpreted the vote to hold rates after three previous split decisions as a sign policymakers are gearing up to ease monetary policy later this year.

"Overall it is a hawkish statement, in which the bank acknowledges progress in fighting inflation but still not enough for them to ease policy," said Alberto Ramos, chief Latin America economist for Goldman Sachs.

The bank's current board of mostly career technocrats could be replaced if Vice President Michel Temer becomes president, Reuters reported on Tuesday, citing sources familiar with the matter.

Market analysts have accused President Dilma Rousseff of pressuring the central bank to not make further rate hikes. In Brazil, the central bank has administrative autonomy but is not completely independent.

The bank, under the leadership of Alexandre Tombini since 2011, has been under fire for years for being too tolerant of high inflation.

Slower inflation stemming from a drop in government-controlled prices and dwindling consumption had raised bets the central bank could start a new easing cycle in the second half of the year.

Brazil's inflation rate slowed sharply in March to below 10 per cent a year, the lowest in nine months, but it is still well above the 4.5 per cent center of the official target range.

REUTERS