Brazil to hold rates steady

Bloomberg

Brazil’s central bank will likely hold its interest rate steady for the fourth straight meeting as inflation expectations rise further above target and President Luiz Inacio Lula da Silva questions the institution’s goals.
All 32 economists in a Bloomberg survey expect board members to keep the benchmark Selic rate unchanged at 13.75%, when the central bank wraps up its first decision of the year.
Policymakers led by Roberto Campos Neto had raised rates by 11.75 percentage points over a year and a half before pausing in September, though they have reiterated that they may resume the monetary tightening cycle if needed.
Brazil’s annual inflation has slowed the most among major emerging economies in recent months, easing to 5.87% in mid-January from a peak of over 12% last year. Still, analysts are running up their consumer-price forecasts as Lula delivers billions of dollars in extra spending, undercutting the effects of higher rates. Complicating the outlook further, the leftist president has also questioned the central bank’s independence and its inflation goals.
Put together, traders have now erased all bets for borrowing-cost cuts early this year, and most economists have delayed their forecasts for the beginning of an eventual easing cycle to September.
Analysts will be on the look-out for the central bank’s consumer price projections. Annual inflation breached the ceiling of the monetary authority’s tolerance range in December, and there are more challenges on the horizon.
Tax cuts which lowered transportation costs last year are now fading, with gasoline and housing prices easing down only slowly. Core measures that strip out the most volatile items are above target.