Brazil Wants to Raise Interest Rates to Curb Demand and Prevent Inflation

Brazil fears inflationCentral bank policy-makers in Brazil said Thursday they are ready to raise rates next month to curb inflation pressure as jobs data highlighted the strength of the country’s economic rebound.

The central bank’s board is in agreement on the need to cool a rapid rebound in consumer demand in Latin America’s biggest economy, according to minutes from the bank’s monetary policy committee meeting held last week.

Brazil would be the region’s first major economy to hike borrowing costs in the wake of the global financial crisis should the bank raise its Selic lending rate when its next policy meeting ends on April 28.

“There was consensus among committee members on the need to implement an adjustment to the base interest rate,” the minutes said. “Given the signs of robust domestic demand, causing the reduction of the output gap… and recent inflation expectations, the risks to a benign inflation scenario increased.”

The central bank committee, known as Copom, last week voted to keep its so-called Selic rate unchanged at a record low 8.75% for a fifth straight meeting, despite rising inflation expectations.

A majority of the 8-strong Copom decided to wait for further evidence of inflation pressure before raising borrowing costs. Three voted for a 50-basis point increase and the minutes left the door open for bigger hikes down the line, some analysts said.

“The majority of Copom members…thought it more prudent to watch the evolution of the macroeconomic scenario until the next committee meeting, so as to then start the adjustment in the base rate,” the minutes said.

Job figures released on Thursday reinforced the view the Brazilian economy is on a solid footing. Unemployment in Brazil rose in February, but by less than expected as the recovery prompted more people to look for work.

Inflation expectations have been rising rapidly in Brazil during recent weeks. Analysts bet the benchmark IPCA consumer price index could reach 5.1% at the end of 2010, according to the latest weekly central bank survey. The government has an inflation target of 4.5%, plus or minus 2 percentage points.

Analysts in the central bank survey also see 5.5% growth for the economy in 2010, and the most recent data reinforced the prospect of solid growth this year.

Expectations of higher borrowing costs in Brazil come as the central bank readies a series of changes in foreign exchange rules that may slow currency inflows.

The measures aimed at simplifying the foreign exchange market could help offset the impact of more dollars entering the country from investors hungry for higher yields.

Among the measures announced on Wednesday, companies will not require prior authorizations from the central bank to move money in and out of Brazil. Also, companies that raise money through the sale of shares outside Brazil known as depositary receipts will be allowed to keep those proceeds abroad, Central Bank President Henrique Meirelles told a news conference in Brasilia on Wednesday.

Mercopress

Tags:

  • Show Comments (0)

Your email address will not be published. Required fields are marked *

comment *

  • name *

  • email *

  • website *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Ads

You May Also Like

Brazil’s House Committee to Ask for Expulsion of 18 Congressmen

The first preliminary report from Brazil’s Post Office CPI – Comissão Parlamentar Mista de ...

Brazil’s Industrial Capacity Nearing Its Limit

Brazilian market analysts and financial consultants interviewed last week by Brazil’s Central Bank expressed ...

Brazil’s Petrobras Goes Full Steam Ahead with US$ 92 Billion Investment

Petrobras, Brazil's government-controlled oil and gas multinational, announced this Wednesday, February 4,  its domestic ...

A gas pipeline in Brazil

Brazil Only Loses to Chile as the Best Place to Invest in LatAm

According to a report from the World Economic Forum meeting this week in the ...

Brazil and G4 Create United Front for UN Reform

Representatives of the G4 – Brazil, Germany, India and Japan – met in Brussels, ...

Brazil to Implant World’s First Robotic Arm into a Human

The Syrian-Lebanese Hospital, in the southeastern Brazilian city of São Paulo, is going to ...

A Brazilian Blockbuster

Hollywood hunk and soap opera star in NBC’s Days of Our Lives as Officer ...

Brazil’s US$ 2 Billion Nigerian Investment Starts to Bear Oil

Brazil's state-controlled oil multinational Petrobras started production of oil in Agbami field, in Nigeria. ...

LatAm’s Ill Is Not Chavez But Misery and Lack of Education, Says Brazil’s Lula

Brazil's President, Luiz Inácio Lula da Silva said on Thursday, April 26, he believes ...

Another Step from Brazil Away from Gas Dependence on Neighbors

Brazil's first Liquefied Natural Gas (LNG) regasification plant was inaugurated this Wednesday, August 20. ...