Tags: Brazil Hikes Interest Rate to 6-year High Despite Recession Fears

Brazil Hikes Interest Rate to 6-year High Despite Recession Fears

Thursday, 05 Mar 2015 06:45 AM


Brazil raised interest rates on Wednesday to the highest level in six years, maintaining its aggressive pace of monetary tightening to fight inflation despite fears the economy is slipping into a deep recession.

The bank's monetary policy committee, known as Copom, voted unanimously to hike the benchmark Selic rate by 50 basis points for the third straight time. The move was expected by an overwhelming majority of economists and traders.

Brazil is one of the few major economies raising rates, with peers such as China and India loosening monetary policy to prop up economic growth.

The latest hike supports President Dilma Rousseff's drive to rein in inflation that surged to 12-year highs in mid-February and regain the trust of investors in Latin America's biggest economy.

Repeating exactly the same statement from its last meeting on Jan. 21, the central bank gave no clear clues on whether it is planning to slow the pace of the rate-hiking cycle or continue at the current pace.

Some interpreted the terse statement as a signal that the bank will go for another steep rate increase.

"The central bank is signaling that it will keep up the pace of monetary tightening," said Andre Perfeito, economist with Gradual Investimentos.

The central bank has raised rates by 175 basis points since October to curb inflation that has surged well past the official target ceiling of 6.5 percent.

The aggressive rate hike in Brazil followed India's surprise move on Wednesday to lower its policy rate. China cut borrowing costs over the weekend.

Since her narrow re-election victory in October, Rousseff has moved to ease price pressures with spending cuts and tax increases, but some of those measures have run into trouble.

The Brazilian Senate on Tuesday threw out a decree to reduce tax breaks, frustrating an effort to save the government 5.35 billion reais ($1.80 billion) this year.

Some economists say Congress' resistance to belt-tightening could put pressure on the bank to raise rates further.

Although the austerity push is key to regaining investors' confidence, it is also weighing on an economy that is heading into recession.

Economists expect the economy to shrink more than 0.5 percent this year, the largest contraction since 1990, with some warning that possible energy and water rationing could trim another 2 percentage points off growth.

© 2017 Thomson/Reuters. All rights reserved.

   
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Brazil raised interest rates on Wednesday to the highest level in six years, maintaining its aggressive pace of monetary tightening to fight inflation despite fears the economy is slipping into a deep recession.
Brazil Hikes Interest Rate to 6-year High Despite Recession Fears
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2015-45-05
Thursday, 05 Mar 2015 06:45 AM
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