Brazil Central Bank Hints at End to Rate Increases

4/4/14
 
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from The Wall Street Journal,
4/2/14:

Brazil’s central bank Wednesday raised its key interest rate as expected, but hinted it is contemplating an end to a cycle of increases that began a year ago.

The monetary authority raised its Selic benchmark rate to 11% from 10.75%, the ninth consecutive increase.

Changes to the terse postmeeting statement raised expectations the central bank may be close to wrapping up the cycle that began in April 2013.

Still, it is unclear whether that halt will come at the next meeting, scheduled for May 27-28. The central bank said it would monitor economic data closely in the run-up to the next decision.

“There will probably be another increase at the next meeting, if there’s no surprise, but the continuity of the cycle beyond that is unlikely,” said economists at Banco Fator in a note. “After all, there were lots of caveats and conditions” in the statement, they said.

Brazil began raising borrowing costs last April, when the Selic was at a historic low of 7.25%.

The tightening cycle was a response to persistently high consumer prices. The central bank has a mandate to keep annual inflation at around 4.5%, with a tolerance margin of two points up or down.

The main price index spent most of 2013 at the upper end of that range, and economists forecast it will remain at that level this year, too.

Just last week, the central bank itself raised its forecast for inflation this year to 6.1%, from 5.6% previously, largely the result of an unexpected surge in food prices.

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