UPDATE 3-Brazil holds rates, bets recession will cool prices

miércoles 20 de enero de 2016 20:20 GYT
 

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By Alonso Soto

BRASILIA Jan 20 (Reuters) - Brazil's central bank kept interest rates on hold on Wednesday as it bet the worst recession in decades would temper double-digit inflation, but the surprise move fueled concern over political interference in policy.

In a split vote, the bank's 8-member monetary policy board, known as Copom, decided to maintain its benchmark Selic rate at 14.25 percent for the fourth straight time. Six board members supported keeping rates on hold while two wanted a 50-basis-point increase.

The decision came after central bank chief Alexandre Tombini on Tuesday unexpectedly backed away from his insistence that higher rates were needed to curb inflation running at a 12-year high of more than 10 percent.

Tombini said policy makers had to take into account the International Monetary Fund's "significant" cuts to Brazil's growth outlook announced on Tuesday. The Fund said the economy would shrink 3.5 percent this year, versus an earlier forecast for a 1 percent contraction.

In its decision statement, the bank highlighted growing uncertainties in the global economy as the main reason for staying on par.

"Considering the macroeconomic outlook and the perspectives for inflation and the actual balance of risks, and considering the increase of domestic and primarily, external, uncertainties, Copom decided to hold the Selic rate at 14.25 percent," the bank said.

President Dilma Rousseff's Workers' Party, business groups and unions called on the bank not to raise rates to give the economy time to recover from a recession that has added 1.5 million people to the unemployment register over the past year.   Continuación...