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Brazil Holds Key Rate at 2%, Halts Easing Cycle as Demand Firms

Stock MarketsSep 16, 2020 05:27PM ET
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© Reuters. Brazil Holds Key Rate at 2%, Halts Easing Cycle as Demand Firms

(Bloomberg) -- Brazil held its benchmark interest rate at a record low, halting a yearlong monetary easing cycle, as a barrage of stimulus measures revives demand and raises prospects of faster inflation.

The central bank, led by its President Roberto Campos Neto, kept the Selic rate at 2% on Wednesday, as expected by all 36 economists in a Bloomberg survey. The monetary authority had cut 450 basis points from borrowing costs over the past nine meetings.

The decision came hours after the U.S. Federal Reserve left interest rates near zero and signaled it would hold them there through at least 2023.

Latin America’s largest economy is getting a shot in the arm from the central bank and also billions of dollars in fiscal stimulus amid the pandemic. Industrial production and retail sales beat out analyst estimates in June and July in a sign activity is firming up more quickly than expected. At the same time, greater spending has helped to lift break-even inflation rates -- measured by the difference on yields between nominal and inflation-linked bonds.

“Given the balance of risks, there was no reason to do anything other than holding rates,” Simone Pasianotto, an economist at REAG Investimentos, said before the decision. “The economy is starting to improve and the current food price increase is a temporary shock.”

Read more: Rise in Brazil Breakevens Indicates Inflation Set for a Revival

Earlier this month, President Jair Bolsonaro asked supermarket representatives to reduce profit margins on staples given increases in the prices of those goods. While headline inflation is still seen running below target this year and next, food and beverage prices jumped in August.

Brazil has recorded over 4.3 million virus cases and more than 133,000 related deaths, though there are signs that the spread of the pandemic is slowing.

©2020 Bloomberg L.P.

 

Brazil Holds Key Rate at 2%, Halts Easing Cycle as Demand Firms
 

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