Brazil keeps policy rate unchanged

February 02, 2023: Brazil's central bank held its key interest rate unchanged on Wednesday in its first meeting under newly installed President Luiz Inacio Lula da Silva, as inflationary pressures continued worrying policymakers in Latin America's biggest economy.

Citing uncertainty around the inflation outlook, the bank's monetary policy committee voted to leave the benchmark Selic rate at 13.75%, in line with market expectations for its fourth straight hold.

"The decision reflects uncertainty around (the committee's) scenarios and an even larger-than-usual variation in the risk profile for future inflation," the committee said in a statement.

The decision came on the same day the US Federal Reserve slowed its own monetary tightening, hiking the benchmark interest rate by 0.25 % but warning that inflation remains elevated.

Brazil's central bank said the global inflation outlook remained "pressured" but showed "positive signs at the margin," citing improved indicators of economic activity and China's recent relaxing of Covid-19 restrictions.

Haunted by a history of hyperinflation, Brazil went on one of the most aggressive tightening campaigns in the world when global prices started to surge in early 2021, fueled first by the impacts of Covid-19 and then the Russia-Ukraine conflict.

The central bank raised its key rate from an all-time low of 2% in March 2021, including three whopping hikes of 1.5% points.

It succeeded in bringing inflation down from 12.13% in April 2022 to 5.79% currently though that is still above the central bank's current target of 3.25%.

Veteran leftist Lula's social spending plans have some market watchers worried that a government splurge could now unleash inflationary pressures again.

AFP/APP