Brazil Holds Key Rate at 14.25%

The central bank of Brazil left its benchmark interest rate unchanged at 14.25 percent at its January 20th meeting. The Selic rate was left on hold at a 9-year high for the fourth straight meeting, as policymakers struggle to curb rising inflation amid a deep contraction.

The decision was not a full surprise for markets after the central bank governor Alexandre Tombini said the IMF growth outlook cut would be taken into account in the monetary policy decision.

The IMF cut its GDP forecasts for Brazil by 2.5 percent to a 3.5 percent contraction in 2016 and stagnation in 2017. Yet, the economy stayed in contraction for the sixth consecutive period in the third quarter of 2015, shrinking an annual 4.5 percent. Meanwhile, the inflation rate rose to 10.67 percent in December, the highest in 12 years and far above the central bank’s upper limit target of 6.5 percent.

The latest FOCUS Market Readout released on January 8th by the Central Bank showed analysts from about 100 private financial institutions expect the economy to contract by 2.99 percent in 2016 and advance 0.86 percent in 2017. Annual inflation is expected to grow 6.93 percent and industrial production to decline by 3.45 percent, unveiling the worst economic performance since 1990.

Brazil Holds Key Rate at 14.25%

Yekaterina Guchshina|
1/20/2016 10:45:56 PM