(Changes word “contempt” to “content,” 9th paragraph)
By Alonso Soto
BRASILIA, Jan 28 (Reuters) - Most members of the Brazilian central bank board believe a recession at home and downward pressures on the global economy will help bring inflation back to target in 2017, signaling policy-makers may keep interest rates steady in coming months.
That majority in the central bank’s eight-member monetary policy committee, known as Copom, surprised markets last week by keeping its benchmark Selic rate at 14.25 percent after signaling an increase to rein in prices. Two Copom members voted to raise the Selic to 14.75 percent.
The decision raised questions of political interference by President Dilma Rousseff, who opposed a rate increase out of fear it could hamper her government’s plans to jumpstart the economy.
In the minutes, the bank said most board members believed the domestic slowdown and greater risks abroad combined with past rate increases “could strengthen the inflation convergence scenario for target of 4.5 percent in 2017.”
The central bank said dwindling oil prices and a slowdown in the Chinese economy were key risks to global economic growth, but reiterated that it is determined to curb inflation this year and next.
The bank gave a few hints that it could keep rates on hold for now.
Although the bank reiterated monetary policy should remain vigilant, it removed the word “especially,” which in the past signaled a interest rate increase.
It also removed a previous line that called for monetary action “regardless of other policies”.
“The general impression is what we suspected, which is that most of the board members seen content to stay put at the moment,” said Edward Glossop, emerging market economist with Capital Economics.
Glossop said the minutes did little to dispel concerns of political meddling as the government on Thursday was poised to announce an expansion of cheap credit to bolster the economy. .
Bolstering credit complicates the bank’s battle against inflation and rekindles worries that Rousseff is adopting the expansive fiscal policies of her first term blamed on undermining the economy.
The new credit lines through state-run banks could climb to 70 billion reais ($17.2 billion) and will focus on corporate lending, a government source told Reuters on Thursday.
The central bank reiterated that uncertainties about the recovery of the country’s finances continues to pressure prices.
Brazil’s central government on Thursday posted a primary budget deficit of 115 billion reais last year, the largest shortfall ever as the recession drags down tax revenues.
Reporting by Alonso Soto and Silvio Cascione; Editing by Angus MacSwan and W Simon