August 31, 2016 / 10:12 PM / in 2 years

TEXT-Brazil central bank leaves benchmark rate at 14.25 pct

BRASILIA, Aug 31 (Reuters) - Brazil’s central bank held its benchmark interest rate at 14.25 percent for a ninth straight time on Wednesday.

Following is the text of the statement issued by the bank’s monetary policy committee, known as Copom:

“The Copom unanimously decided to maintain the Selic rate at 14.25 percent per year, without bias.

The baseline scenario with which the Committee works can be summarized by the following observations:

The set of indicators released since the last Copom meeting shows evidence that the Brazilian economy has stabilized recently. It also points to the possibility of a gradual pick-up in economic activity. The economy continues to operate with a high level of economic slack;

The external outlook still offers a relatively benign environment for emerging economies. However, uncertainties regarding global economic growth and, especially, the pace of monetary policy normalization in the United States, remain;

Current inflation remains under pressure, partly due to food components. Disinflation has evolved more slowly than expected;

Inflation expectations collected by the Focus survey for 2017 fell since the last Copom meeting, but remain above the 4.5 percent inflation target. At longer horizons, expectations have dropped to around that level; and

The Committee’s inflation forecasts for 2016 in the reference and market scenarios increased since the last meeting, to approximately 7.3 percent. Inflation forecasts over the relevant horizons for the conduct of monetary policy have either remained relatively stable or decreased. In particular, under the assumptions of the reference scenario, 2017 inflation is projected at around the target of 4.5 percent. Under the assumptions of the market scenario, the forecast for 2017 inflation fell to 5.1 percent.

The Committee identifies the following domestic risks to the baseline scenario for inflation:

On the one hand, (i) higher-than-expected inflation in the short term, largely due to food prices, may show persistence; (ii) uncertainties regarding the approval and implementation of the necessary adjustments in the economy remain; and (iii) a prolonged period with high inflation and above-target expectations can strengthen inertial mechanisms and delay the disinflation process;

On the other hand, (iv) wholesale price indices point to the possibility of the shock to food prices fading, with favorable impacts on IPCA inflation; (v) the adjustments in the economy can be implemented more quickly, allowing confidence gains and reducing inflation expectations; and (vi) the level of economic slack may lead to disinflation at a faster pace than the one reflected in the Copom projections.

Taking into account the baseline scenario, the current balance of risks, and the wide array of available information, the Copom decided to maintain the Selic rate at 14.25 percent per year, without bias. The Committee judges that a loosening of monetary conditions will depend on factors that allow greater confidence on meeting the inflation targets at the relevant horizons for the conduct of monetary policy, in particular the 4.5 percent target for 2017. The Committee emphasizes the following domestic factors: (i) that the persistence of the impacts of the food price shock on inflation be limited; (ii) that IPCA components that are most sensitive to monetary policy and economic slack show disinflation at an appropriate pace; (iii) that the uncertainty regarding the approval and implementation of the necessary economic adjustments be reduced, including the composition of fiscal measures, and their effects on inflation. The Committee will assess the evolution of the combination of such factors.

The following members of the Committee voted for this decision: Ilan Goldfajn (Governor), Anthero de Moraes Meirelles, Carlos Viana de Carvalho, Isaac Sidney Menezes Ferreira, Luiz Edson Feltrim, Otávio Ribeiro Damaso, Reinaldo Le Grazie, Sidnei Corrêa Marques and Tiago Couto Berriel”

Writing by Silvio Cascione; Editing by James Dalgleish

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