Brazil holds interest rate steady amid recession

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SAO PAULO: Recession-hit Brazil’s central bank left the key interest rate untouched on Wednesday (Thursday in Manila) despite rising inflation, opting against an increase that could put a further brake on the world’s seventh-biggest economy.

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Surprising some observers, the bank left the benchmark Selic rate at 14.25 percent, citing “increased domestic and particularly external uncertainties.”

It said central bank chief Alexandre Tombini and five other members of the monetary policy committee had voted to hold the rate steady, while two voted to increase it.
Officials are under pressure to ease the hardship of ordinary Brazilians squeezed by rising prices with double-digit inflation.

But the bank has been in a bind, since raising the rate risks further dampening economic activity just as fresh data point to a deep recession this year.

The rate has now been steady since July 2015, when the bank made the last of seven consecutive hikes to try to put a lid on inflation.

Battered by economic and political turbulence as it prepares to host this year’s Olympic Games, Brazil recorded its highest inflation rate in 13 years at the close of 2015, at 10.67 percent—well above the central bank’s target ceiling of 6.5 percent.

That rapid rate in the rise of prices for everyday goods sharpens Brazilians’ economic woes after the country fell into recession in the second quarter of last year.

The International Monetary Fund said Tuesday it expected Brazil’s economy to contract 3.5 percent this year—a much darker outlook than its previous forecast of a one-percent fall.

The IMF also cut its forecast for the world economy as a whole, saying that risks in the major emerging economies were weighing down growth.

It warned the strong US dollar, collapsed oil prices and political turmoil could all cause further havoc in struggling economies like Brazil’s and Russia’s.

Brazil’s economy shrank by 3.8 percent in 2015.

The country is suffering rising unemployment and a drop in investor confidence fueled by impeachment proceedings against leftist President Dilma Rousseff and a scandal at state oil firm Petrobras.

AFP

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