ZCZC
BCN-11
BRAZIL-ECONOMY-RATE-CURRENCY-INFLATION
Brazil expected to keep interest rate at 6.5%
RIO DE JANEIRO, June 20, 2018 (AFP) – Brazil’s central bank is expected to
maintain interest rates at 6.5 percent Wednesday after deciding that strong
depreciation of the real and a costly truckers’ strike have not fed inflation
beyond current limits, analysts say.
“Monetary policy depends on the evolution of inflation… and it will not
be used to control the exchange rates,” bank chairman Ilan Goldfajn said
earlier this month in an attempt to dispel speculation over a rates hike in
reaction to the currency turmoil.
The central bank interrupted a series of 12 consecutive cuts to the key
Selic rate in May, citing volatility in the markets and investor frustration
over the government’s inability to push through pension reform and other
long-delayed austerity measures.
Interest rate hikes in the United States and a growing trade dispute
between Washington and Beijing have contributed to the instability in Brazil,
with emerging markets investors withdrawing capital to safe havens.
One early sign of the turmoil has been the strengthening of the dollar,
which traded at nearly $4 two weeks ago for the first time in two years.
The bank has intervened with $24.5 billion to try and prop up the real and
will inject another $10 billion this week.
Goldfajn has also sought to bolster market nerves by noting the country’s
“solid” economic fundamentals, including low inflation and $380 billion in
reserves.
Latin America’s biggest economy is slowly emerging from its worst
recession in history, which extended through 2015 and 2016.
But in May, an extended truckers’ strike brought the economy to its knees,
adding to a rising sense of political uncertainty ahead of general elections
in October. So far, no strong candidate backs President Michel Temer’s
stalled market reforms program.
GDP growth projections for 2018 have fallen from 2.45 percent just five
weeks ago to 1.76 percent in the latest central bank survey of market
expectations. At the start of the year, the forecast was for three percent
economic growth.
Inflation projections, meanwhile, have risen from 3.45 percent to 3.88
percent in the wake of the truckers’ strike.
However, this is still within the central bank’s target range, which
centers on 4.5 percent, with a 1.5 percent margin to each side.
While inflation is under control, “there is greater pressure on prices
from the truckers’ strike that should end up being reflected in the inflation
numbers,” said Marcelo Caparoz from RC Consultores.
BSS/AFP/HR/0936