Brazil's government sees higher rates sinking recovery -sources
By Alonso Soto
BRASILIA Jan 14 (Reuters) - Brazilian President Dilma Rousseff's left-leaning administration is worried a possible interest rate hike next week will foil its efforts to revive a battered economy while failing to curb inflation, government sources said on Thursday.
The ruling Workers Party, unions and businesses are pressuring the central bank to keep its Selic rate unchanged to avoid deepening what is on track to become Brazil's worst recession in more than a century.
The central bank has raised the rate by 700 basis points since 2013 to 14.25 percent - the highest benchmark interest rate of any major economy - but has had scant success in stemming price rises. Annual inflation surged to a 12-year high of 10.67 percent in December, more than double the official target of 4.5 percent.
Inflation expectations for this year and next continue to rise as Brazil's currency, the real, weakens and major cities raise bus fares.
Most economists expect the central bank to raise the rate by 50 basis points on Wednesday, though they are concerned such a move will place it in conflict with the government's more expansionist fiscal stance. The administration is almost certain the central bank will raise rates next week despite some recent doubts among market traders, two government sources said.
The government's plan to increase credit for some sectors of the economy and to help the auto industry and small businesses show a growing disconnect with the central bank, they say.
Although Rousseff's government will not interfere, the two officials said a rate hike was unnecessary as the deepening recession, which has cost 1.5 million Brazilians their jobs over the past year, would eventually cool inflation.
"Our concern is that higher rates will again fail to bring down inflation while further sinking the economy," a presidential aide familiar with the matter said on condition of anonymity. Continuación...