Brazil central bank holds rates, notes balanced inflation risks

FILE PHOTO: People walk outside the central bank headquarters building in Brasilia
FILE PHOTO: People walk outside the central bank headquarters building in Brasilia, Brazil, September 6, 2017. REUTERS/Ueslei Marcelino

March 20, 2019

By Jamie McGeever

BRASILIA (Reuters) – Brazil’s central bank kept its benchmark interest rate at a record low 6.50 percent on Wednesday, as expected, while noting that recent economic data has been weaker than expected and that inflation risks are no longer skewed to the upside.

The bank’s nine-member monetary policy committee, known as Copom, voted unanimously to keep the benchmark Selic rate unchanged for the eighth straight meeting, as forecast by all 21 economists in a Reuters poll. [BR/INT]

In a sign that new central bank chief Roberto Campos Neto will stay the steady course set out by his predecessor, Copom repeated a line from recent policy statements that policy is best determined with “caution, serenity and perseverance.”

In a shift from its February statement, however, Copom said on Wednesday that risks to inflation are symmetrical. Six weeks ago the committee said inflation risks were skewed to the upside but moderating.

“Recent data on economic activity came in below expectations,” policymakers said in their statement.

“On the one hand, the high level of economic slack may lead to a lower-than-expected prospective inflation trajectory. On the other hand, frustration of expectations regarding the continuation of reforms…may affect risk premia and increase the path for inflation over the relevant horizon,” they said

Copom has long stressed the importance of economic reforms and adjustments – the biggest of which is an overhaul of social security recently presented in Congress – to keep inflation anchored and improve the outlook for Brazil’s economy.

(Reporting by Jamie McGeever; Editing by Brad Haynes and Alistair Bell)

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