By Paulo Trevisani and Jeffrey T. Lewis
SÃO PAULO–Brazil’s central bank left its benchmark lending rate unchanged Wednesday, as expected, and maintained its hawkish stance on inflation.
The bank’s monetary policy committee, or Copom, left the Selic rate at a six-year high of 13.75%. The Copom’s members reiterated that they won’t hesitate to resume rate increases if inflation doesn’t continue to slow as expected, adding that that’s a less likely scenario.
“The committee emphasizes that it will persist until the disinflationary process consolidates and inflation expectations anchor around its targets. The committee judges that the current scenario demands patience and serenity in the conduct of monetary policy,” the Copom said in its statement.
The bank began raising the Selic in early 2021 from a record low of 2% to slow the pace of consumer price increases. Brazil’s main measure of inflation has since come down to 4.65% in March from an almost 19-year high of 12.13% in April of last year.
The latest reading of a midmonth inflation measure, for April, was lower than expected and inched closer to the central bank’s target of 3.25%. It fueled calls from government officials, business leaders and labor unions for rate cuts.
The central bank has rebuffed such calls, arguing, among other things, that inflation expectations remain too high. In the bank’s most recent weekly survey of economists, the 12-month consumer price increase forecast for the end of this year rose for the fifth consecutive week, to 6.05%. The outlook remains above target through 2026.
In the same survey, the Selic is seen ending this year at 12.5%, with cuts accelerating next year.
The rising inflation expectations are likely reflecting criticism from Brazilian President Luiz Inácio Lula da Silva and his top advisers of the bank’s tight monetary policy. Central bank President Roberto Campos Neto has resisted the pressure to cut rates, but the tug-of-war has been an added source of tension among investors.
“The political noise causes stress on interest-rate markets,” said Bruna Centeno, economist and partner at Blue3 Investimentos. “Will [the central bank] break under the government’s pressure?”
Write to Paulo Trevisani at [email protected]
(END) Dow Jones Newswires
05-03-23 1825ET
