Brazil central bank keeps borrowing costs on hold for the ninth straight session

The central bank of Brazil kept borrowing costs on hold consecutively for the ninth monetary policy meeting, as the economy struggles with a widening recession, deep inflationary pressures and the recent fallout from the impeachment of President Dilma Rousseff.

The central bank’s board led for the second time by its new chief, Ilan Goldfajn, unanimously voted to maintain the Selic rate at a 10-year high of 14.25 percent. All 45 analysts surveyed by Bloomberg correctly forecast the decision. Traders in the swaps market expect policy makers to cut rates by year-end for the first time since 2012.

In addition, a government report showed the economy shrank for a sixth straight quarter in the three months through June, as the worst recession in decades shows few signs of easing. Michel Temer, who succeeds Rousseff, now faces the difficult job of fixing an economy marked by declining retail sales, a drop in industrial production, a near-record budget deficit and above-target inflation, Bloomberg reported.

Moreover, the continued appreciation in the Brazillian Real has failed to damp consumer prices, which rose 0.52 percent in July from the previous month to push the annual rate to 8.74 percent. With inflation at almost double the official target of 4.5 percent, Goldfajn has made it clear there is no immediate room for a reduction in the benchmark interest rate.

Meanwhile, analysts surveyed weekly by the central bank expect borrowing costs to drop by 50 basis points to 13.75 percent this year before reaching 11.25 percent in 2017. They also estimate GDP will rebound next year.