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Brazil Central Bank raises rates to battle inflation
April 2, 2014, 11:40 pm

Is the Brazilian economy is slowly beginning to show momentum? [Xinhua]

Is the Brazilian economy is slowly beginning to show momentum? [Xinhua]

The monetary policy committee at the Central Bank of Brazil raised the benchmark Selic interest rate to 11 per cent late on Wednesday in a bid to boost the economy amid rising food prices.

It has raised the rate from 10.00 at the beginning of the year to 10.75 per cent in February. Wednesday’s unanimous decision is the ninth consecutive time that the Bank has raised rates.

While some analysts are speculating that another rate increase may come as soon as next May, the Bank chose its words more carefully:

The committee will monitor the evolution of the macroeconomic outlook until its next meeting, to then define the next steps in its monetary policy strategy.

In early March, the central bank revised its full-year 2014 inflation forecast to 6.1 per cent from 5.6 per cent. Last week, the figures were again modified – the new inflation forecast is 6.3 per cent, just 0.2 per cent shy of the bank’s ceiling.

Meanwhile, Brazil’s national statistics agency IBGE also said on Wednesday that output of durable consumer goods rose 3.3 per cent in March while capital goods production rose by 0.1 per cent.

The report came a day after the HSBC Purchasing Managers’ Index (PMI) for the Brazilian manufacturing sector released indicated growth for the fourth consecutive month.

The index rose to a seasonally adjusted 50.6 in March from 50.4 in February.

A PMI reading below 50 indicates contraction, while that above 50 signals expansion.

Industrial production has continued to rebound since December, when it retracted by as much as 3.7 per cent from the month before.

But the study also revealed that the new orders index slid slightly to 50.7.

Coupled with a central bank poll which revealed that industrial production is expected to grow by 1.38 per cent this year, the latest figures offer a mixed bag to President Dilma Rousseff who has been trying to pull the economy back to its heyday just a few years ago.

The greatest threat to economic growth is the nearly rampant inflation rate.

Source: Agencies

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