Brazil poised to leave rates steady as inflation remains high

miércoles 31 de agosto de 2016 01:00 GYT
 

By Alonso Soto

BRASILIA Aug 31 (Reuters) - Brazil's central bank is widely expected to hold interest rates at near-decade highs for the ninth straight time on Wednesday, keeping up a battle against inflation that has barely eased despite a crippling recession.

All of the 39 economists polled by Reuters last week said the bank's monetary policy committee, known as Copom, would maintain its benchmark Selic rate at 14.25 percent for Latin America's largest economy.

Although Brazil's borrowing costs are among the highest for a major economy, inflation has remained stuck at around 9 percent as a surge in food prices offset a sharp drop in consumer and business demand.

Stubborn inflation has puzzled economists and raised worries among policymakers that it could threaten an economy they believe could be near a turning point as a political crisis eases and confidence returns in the former emerging-market star.

The country's gross domestic product probably fell in the second quarter but is likely to show signs the recession may be near its end, a Reuters poll of economists showed last week. The official GDP result is scheduled for release early on Wednesday.

Central bank chief Ilan Goldfajn, however, has vowed to remain firm in his quest to slow inflation to the official target of 4.5 percent in 2017. The bank has missed that goal since August 2010 after years of heavy public spending and stimulus to consumption.

Economists expect Copom to take a fairly gentle approach to rate-cutting that would take the Selic to 11.25 percent by the end of 2017, according to the central bank's weekly poll.

For Wednesday, though, they expect the committee to maintain its tough stance by repeating that there is no room to cut interest rates at this time.

"We now believe that the monetary easing cycle would only start at the committee's last meeting of the year, in November," economists with Sao Paulo-based bank Fibra said in a research note. (Reporting by Alonso Soto; Editing by Lisa Von Ahn)