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BRASILIA, June 16 (Reuters) - Brazil’s central bank expects annual inflation to fall and hit the center of its target range in 2017 and reiterated it is not yet considering lowering interest rates despite a crippling recession.
In the minutes of its last rate-setting meeting released on Thursday, the bank said that a risk to its inflation objective was uncertainty over the gradual recovery of the fiscal accounts.
The mid-point of the bank’s annual inflation target range is 4.5 percent, less than half the 9.32 percent inflation rate clocked in the 12-month period through May.
The central bank last week left its benchmark Selic rate steady at 14.25 for the seventh straight time to battle persistently high inflation.
It was the last meeting of the eight-member board before Ilan Goldfajn took over the bank’s presidency. He named four new board members earlier this week, and they still need to be confirmed by the Senate.
The new members include two U.S.-trained academics, a fund manager and a central bank prosecutor.
Goldfajn, who quit as chief economist of the country’s largest private bank Itau Unibanco to join the central bank, has also pledged to bring inflation back to the mid-point of the 2.5 percent to 6.5 percent target range but had not said when he planned to achieve that goal.
“The minutes... signaled that the conditions for the beginning of a monetary easing cycle are still not given,” Enestor dos Santos, economist with Madrid-based BBVA, said in a research note. “In spite of the changes in its board, we expect the bank to continue to hold this view.”
Dos Santos said the bank could opt for a rate cut in the short-term if the government raises its inflation target mid-point to 5.5 percent, and Congress approves a proposed constitutional amendment to limit public spending.
Interim President Michel Temer has proposed a public spending ceiling to narrow a budget deficit that is expected to top 10 percent of gross domestic product in 2016 for the second straight year.
In the minutes, the bank highlighted temporary food supply shocks as one of the reasons behind stubbornly high inflation.
The bank said inflation expectations for 2016 have risen and remain above the center of the target.
Goldfajn’s predecessor, Alexandre Tombini, repeatedly failed to lower inflation the center of the target, raising doubts about the credibility of the bank amid growing political pressure to safeguard an economy mired in recession. (Reporting by Alonso Soto and Silvio Cascione Editing by W Simon)