August 1, 2018 / 7:04 AM / 2 months ago

Brazil set to hold rates at all-time low despite inflation spike

BRASILIA, Aug 1 (Reuters) - Brazil’s central bank is likely to hold interest rates at an all-time low on Wednesday even after inflation jumped back within its target range, due to an underwhelming economic recovery keeping a lid on price pressures in the medium term.

The bank’s monetary policy committee, known as Copom, is widely expected to keep its benchmark Selic interest rate at 6.50 percent at the conclusion of a two-day meeting, according to a Reuters poll of economists.

The decision is expected to be announced at 6:00 p.m. (2100 GMT).

Product shortages driven by a nationwide trucker strike in the final weeks of May, along with higher power rates, lifted the 12-month inflation rate to 4.53 percent in mid-July from 2.70 percent in mid-May.

The central bank is targeting year-end inflation of 4.50 percent for 2018 and 4.25 percent for 2019, with a tolerance margin of 1.5 percentage points in either direction.

Yet economists say the short-term inflation bump is likely to fade soon due to double-digit unemployment rates and widespread idle capacity among companies.

In fact, the protests blocking major roadways and nearly paralyzing key sectors of the economy for two weeks likely weighed on economic activity enough to offset the upward pressure on prices.

A recent Reuters survey showed the strike had curbed the outlook for economic growth this year by nearly one percentage point, but only temporarily drove up prices.

Observers will parse the bank’s policy statement for hints at when interest rates will rise again. But with unpredictable October presidential elections approaching, policymakers may be hesitant to provide any concrete timeline for rate hikes.

Most economists polled by Reuters expect the bank to wait until at least 2019 before raising rates. (Reporting by Bruno Federowski; Editing by Sandra Maler)

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