Brazil's Bank Holds Rate

Brazil's central bank halted six months of interest-rate increases, waiting to see whether the global credit crisis will slow economic growth enough to contain inflation stoked by a slump in the local currency., 10/30/2008 8:17:24 AM

Policy makers, led by Henrique Meirelles, voted unanimously late yesterday to keep the benchmark interest rate ``for the moment'' at a two-year high of 13.75 percent, as expected by 30 of 46 economists surveyed by Bloomberg. The others predicted an increase in the so-called Selic for the fifth time since April.

The bank's decision during what it called ``an environment of greater uncertainty'' comes after investors pulled capital out of Brazil over the past two months, sending stocks and the currency plunging. It follows efforts by the government and U.S. Federal Reserve to boost liquidity in Latin America's largest economy, which may expand at slowest pace since 2003 next year.

Even as the economy slows, the weakening currency is reviving inflation. The benchmark IPCA inflation index accelerated in September to 6.25 percent from 6.17 percent in August. Inflation has stayed above the government's 4.5 percent target since January.

Consumer, construction and wholesale prices as measured by the IGP-M index accelerated in October, rising by 0.98 percent from a month ago, the Getulio Vargas Foundation said today.

The increase, pushed by a 2.09 percent jump for dollar- priced raw materials, was more than all but nine of 30 economists in a Bloomberg survey whose median forecast was for a 0.95 percent increase. Brazil's broadest measure of inflation rose 0.11 percent in September.

Companies are slashing output in advance of an expected economic slowdown from falling commodity prices and reduced lending. Bradesco Corretora, the research arm of Brazil's largest non-state bank, said growth in 2009 may slow to 2.2 percent, less than half this year's estimated 5.2 percent rate.

Brazil's benchmark Bovespa stock index has plunged 37 percent the past two months to 34,845. The real's 24 percent slide in the period makes it the second-worst performer among the world's 16 most-traded currencies.