Brazil's central bank keeps interest rate unchanged after three straight hikes

September 2, 2010 9:46 PM EDT

Brazil’s central bank took a pause from monetary tightening and kept its benchmark interest rate unchanged at 10.75 percent, citing below-target inflation and signs of a global economic slowdown.

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The decision, taken at thee final policy meeting prior to October's presidential election, follows three consecutive rate increases.

Inflation in Brazil’s slipped unexpectedly in the month through mid-August, pushing the annual inflation rate to 4.44 percent, down from 5.22 percent in mid-April.
However, the central bank expects inflation to amount to 4.87 percent, next year, up from a prior 4.8 percent forecast.

Finance Minister Guido Mantega said earlier this week that the economy probably expanded by 0.5 percent to 1 percent in the second quarter – and that GDP growth will accelerate to an annual rate of 6.5 percent to 7 percent by year-end.

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Neil Shearing and David Rees, emerging markets economist at Capital Economics (CE) in London said they expect the benchmark rate to reach 11.25 percent by the end of 2011.

“It certainly appears that economic growth has slowed to a more sustainable pace,” CE said. Data suggest that the economy made a sluggish start [in the third quarter].”

Given the likelihood of a deepening global slowdown late this year and into next, CE think Brazilian growth will probably slow from about 7.5 percent this year to something like 3.0 percent in 2011.

Silvio Campos Neto, chief economist at Banco Schahin SA in Sao Paulo, was quoted as predicting that the central bank could keep rates frozen for the next six months.

“The committee is waiting for new signs, because uncertainty is very high,” he said.

This article is copyrighted by International Business Times, the business news leader