Brazil central bank holds rates, hints it may take longer to hike

By Bruno Federowski and Marcela Ayres

BRASILIA/SAO PAULO (Reuters) – The Brazilian central bank on Wednesday held interest rates at an all-time low, as widely expected, and hinted that it will hold off from raising them for longer than expected.

The bank’s nine-member monetary policy committee, known as Copom, kept the benchmark Selic rate at 6.50 percent for a sixth straight meeting. All 35 economists polled by Reuters had expected the bank to stand pat.

In a statement, the bank pointed to growing risks that an underwhelming economic recovery may curb inflation. Concern eased that disappointment over structural reforms could weigh on the Brazilian real ().

The document omitted language that the bank could tighten policy if the outlook “worsened.” Still, it maintained an assessment that upward risks outweigh downward risks, suggesting only marginal changes to the outlook.

“It seemed previously that the central bank was biased to the upside in terms of rates. Now the outlook is more balanced,” JGP Gestão economist Fernando Rocha said.

Rocha had previously forecast that a first hike would take place in October 2019, but said he could postpone that to early 2020. That is largely in line with a view shared by most of the economists polled by Reuters before the central bank meeting.

Only four of 33 economists who replied to an extra question expected the bank to hike rates before the second half of 2019, while six predicted it would stand pat until 2020. All 20 who participated in both that and the previous poll either kept or lowered their rate forecasts.

Double-digit unemployment has kept a lid on wage hikes, which could allow policymakers to maintain economic stimulus as the economy recovers.

In November, inflation slipped below the bank’s targets for this year and next. Previously, the bank forecast that inflation would peak in the second quarter of 2019, so it may have been caught by the latest releases.

Investors also grew less fearful of a currency selloff after far-right lawmaker Jair Bolsonaro, a law-and-order former army official, won the presidential elections.

Bolsonaro has pledged to enact painful reforms to close a budget deficit, particularly a social security overhaul that his predecessor Michel Temer failed to pass in Congress. But that plan could face rough sledding due to contradictory statements from within his own team, while his reputation for denigrating minorities could alienate some lawmakers.

Once again, the bank stressed that maintaining rates slow will hinge on passing “necessary reforms and adjustments.”

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