Brazil Central Bank Holds Rates, Flags Increased Inflation Expectations

• Brazil's central bank cited rising inflation expectations as it kept interest rates unchanged for the fifth consecutive policy meeting on Wednesday, March 22, drawing concern from the government and weakening bets of imminent monetary easing.
• The bank's rate-setting committee, known as Copom, maintained its Selic benchmark interest rate at 13.75%. The decision, which defied intense pressure from the new government of President Luiz Inacio Lula da Silva to reduce borrowing costs, matched the expectations of all 30 respondents in a Reuters poll.
• "Taking into account the uncertainty of the scenarios, the committee remains vigilant, assessing if the strategy of maintaining the Selic rate for a long period will be enough to ensure the convergence of inflation," policymakers wrote in their policy statement.
• However, Finance Minister Fernando Haddad criticized the statement, saying it was "very concerning" and that the central bank's next decision could put the country's fiscal position "at risk."
• Haddad also said Brazil's inflation is more controlled than that of other developing countries and that inflation expectations could rapidly be reduced in light of new events.
• To date, inflation has cooled to 5.6% in the 12 months through February, but it is still far above this year's 3.25% official target. Meanwhile, the central bank's inflation expectations have risen to 5.8% for 2023 and 3.6% for 2024. With this in mind, the Committee emphasizes that it will continue with its approach until the disinflationary process consolidates and inflation expectations anchor around its targets.

(Source: Reuters)