By Jeffrey T. Lewis and Rogerio Jelmayer
SÃO PAULO--Brazil's central bank sent markets a strong signal
that it isn't planning to lower interest rates this year in light
of continued inflationary pressure, after recent market speculation
the bank might be preparing to cut rates to help spur economic
growth.
In the minutes from its most-recent meeting, published Thursday,
the bank suggested that it isn't considering lowering rates at
least through the end of this year.
The bank left its benchmark Selic interest rate unchanged at its
meeting last week. Several economists suggested then that the bank
was leaving the door open for a rate cut to give a jolt to the
struggling economy, which the government expects to grow only 1.8%
this year.
"The bank was forced to send a clear message to the market,
because analysts were expecting a rate cut," said Cristiano
Oliveira, chief economist Banco Fibra in São Paulo. "They won't
touch rates again this year, they consider (the current level) to
be enough to control inflation."
The bank raised its benchmark interest rate from 7.25% to 11%
over the course of a year in response to rising inflation, halting
the increases in May to wait and see their effect on prices.
Brazil's annual inflation rate rose to 6.52% in June, breaking
through the 6.5% ceiling of the bank's target range, and stayed
above the ceiling in the mid-July reading.
The bank's monetary-policy committee, known as the Copom,
expects consumer inflation to remain resistant to slowing for the
next several quarters.
Given a strategy that "doesn't contemplate a reduction to the
instrument of monetary policy," inflation should start to converge
toward the 4.5%, the central point of the bank's target range in
the longer term, the bank said.
The government of President Dilma Rousseff earlier this week cut
its forecast for economic growth in 2014 to 1.8% from 2.5%.
Many economists think the lower figure is still much too
optimistic. The central bank's most-recent survey of economists and
analysts, released Monday, foresees an expansion of only 1% this
year and some analysts are even predicting a recession at some
point during 2014.
Even with the gloomy outlook for growth, the bank made the right
decision to focus on keeping inflation under control, said Goldman
Sachs economist Alberto Ramos.
"Rate cuts are not warranted, and the Copom seems to think as
much in today's minutes, given the still very challenging inflation
dynamics," he said in a note.
The bank said leaving the Selic unchanged for the rest of the
year fits in with its inflation strategy, but it has the added
benefit of keeping the monetary authority out of the country's
politics ahead of the presidential election in October.
Ms. Rousseff is in a tightening race for re-election. She has a
double-digit lead in the polls for the first round of voting, in
which more than two candidates can run. But a recent survey showed
her strongest challenger in a statistical tie with the president in
a second round of voting.
Ms. Rousseff can avoid a second round of voting by winning half
the votes in the first round, but multiple polls have show her
support level in the first round in the mid-30%.
Write to Jeffrey T. Lewis at jeffrey.lewis@wsj.com and Rogerio
Jelmayer at rogerio.jelmayer@wsj.com