Brazil’s central bank prepares to keep interest rates on a high cycle at 13.75% next week – Reuters poll

Brazil’s central bank prepares to keep interest rates on a high cycle at 13.75% next week – Reuters poll

By Gabriel Boren

BINOS AIRES (Reuters) – Brazil’s central bank is poised to keep its benchmark interest rate at a high cycle of 13.75 percent on Wednesday and is likely to stick to a hawkish stance next year to ease inflation expectations, a Reuters poll showed.

It will be the first stop in a tightening campaign that has seen the exchange rate increase by a total of 1,175 basis points since the start of 2021, when Brazil was already experiencing severe inflationary pains now affecting the world’s major economies.

The bank’s monetary policy committee, known as Cobom, will leave Selic at 13.75%, according to a majority of 24 of 32 economists surveyed September 12-15. A minority of eight saw a 25 basis point rise to 14.0%.

With price hikes beginning to slow in Brazil, policy makers feel little inclined to take a tougher approach on the part of the US Federal Reserve. They are also reluctant to take potentially disruptive steps ahead of the October presidential election.

But Central Bank President Roberto Campos Neto said last week, in a sobering tone, that he is not considering easing policy either, because his priority remains to bring inflation back to official targets.

“Coboom will indicate that it will keep Selic unchanged until August, while maintaining a good spread on international prices and favorable real price levels as well,” said Jason Vieira, chief economist at Infinity Asset Management.

The country’s wide interest rate differentials have helped spur some capital inflows this year, helping to support the local currency and local markets ahead of next month’s elections, when President Jair Bolsonaro will seek a second term.

Brazilian consumer prices fell in August for the second month in a row due to lower fuel costs. In the 12 months through August, inflation was 8.73%, down from the 10.07% seen in the 12 months immediately prior.

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However, the pace is still much higher than the official target of 3.5% for 2022. The outlook for next year is also questionable, with expectations indicating an expected inflation rate of 5.17%, according to a survey conducted by the Central Bank, contrary to expectations. 3.25% official opinion for the year 2023.

Discontent with high inflation has been a major factor behind Bolsonaro’s consistently poor ratings in voter preferences. Former President Luiz Inacio Lula da Silva maintains a strong lead in the opinion polls.

Getting close to the vote is a reason for Copom’s short-term regression, avoiding any decision that could cause waves – especially after a surprisingly strong batch of data in Latin America’s #1 economy.

However, a prudent central bank strategy means Selic is set to stay in the double digits for more than a year before dropping to 9.50% by the second quarter of 2024, the survey’s quarterly estimates showed.

(Reporting and polling by Gabriel Boren in Buenos Aires; Editing by Jonathan Cable and Andrea Ricci)

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