BRASILIA, Oct 21 (Reuters) - Brazil’s central bank will likely keep interest rates steady on Wednesday for the second straight meeting, aiming to avoid further harm to an economy mired in recession despite a recent jump in inflation expectations for next year.
All 48 economists surveyed by Reuters last week expect the central bank to hold its benchmark Selic rate at a nine-year high of 14.25 percent.
Keeping rates on hold would give a breather to President Dilma Rousseff, who is fighting for her political survival amid the worst economic and political crisis since Brazil returned to democracy three decades ago.
The bank has insisted that it has no plans to tinker with interest rates even after a sharp depreciation of Brazil’s currency stoked inflation by raising import prices.
Central bank chief Alexandre Tombini has acknowledged that the weaker real is a threat to its goal of bringing inflation back to the official 4.5 percent target by late 2016. But he argues that the price swings may be temporary and that the bank will not change its strategy of holding rates steady “for a sufficiently prolonged period.”
“The bank will keep rates steady as signals on the activity front keep getting worse,” said Jankiel Santos, chief economist with Haitong in Sao Paulo. “I don’t see a reason for the bank to change rates at this time.”
The central bank is betting that a worse-than-expected economic recession will cool inflation in coming months. A sharp drop in investment and dwindling consumer and business confidence have pushed the economy into a recession that could see activity contract as much as 3 percent this year, according to surveys of economists.
Even as economic growth collapses, however, inflation has continued to climb to near 12-year highs.
Inflation expectations for 2016 reversed their decline and are rising again as investors expect the weaker currency and high price indexation to keep inflation well above target.
Annual inflation likely rose nearly 10 percent in the 12 months through mid-October, due to climbing fuel prices, according to a Reuters survey of economists. The official inflation print will be released at 9 am local time (11:00 GMT) on Wednesday.
High inflation and a worsening recession are fueling political gridlock in a Congress that has been threatening to oust Rousseff only a year after she was elected to a second four-year term. (Reporting by Alonso Soto; Editing by David Gregorio)