Brazil’s central bank remains on hold; policymakers struggle to control inflation

Brazil’s central bank remained on hold at its monetary policy meeting held on Wednesday, largely as markets had expected amid struggle by policymakers to bring the country’s inflation under control. Interest rate remained on hold for the eighth consecutive meeting, this time led by Ilan Goldfajn.

The central bank of Brazil (BCB) held its benchmark Selic rate steady at 14.25 percent, with its nine members voting unanimously for the decision. This came widely in consensus with Bloomberg’s survey of 38 analysts who predicted the same, leaving the rate to near a decade high.

Other market participants are expecting the BCB to act no earlier than in October, when the first rate cut is being forecasted, since 2012. An overwhelming majority of analysts and traders expected the bank to keep the Selic unchanged, extending its longest period of stability since the country adopted an inflation-target regime in 1999, Reuters reported.

The expectations of a rate cut later in the year are based on hopes that Goldfajn can succeed in bringing inflation down closer to the 4.5 percent target and have the opportunity to relax the interest rate.

According to a weekly survey of analysts by the BCB, borrowing costs are expected to drop by one percentage point in 2016 to 13.25 percent before reaching 11 percent next year. They also estimate the economy is likely to rebound in 2017 following the deepest recession in Brazil’s history.

Moreover, inflation has somewhat moderated to 8.8 percent last month from over 12-year high of 10.71 percent at the beginning of 2016. However, analysts are expecting the inflation rate to fall further, although it will remain above target through this year and the start of next year.

Meanwhile, the surge in the Brazilian real is extending some support to policymakers, the currency has appreciated almost 22 percent against the USD, reducing price of imports.