Brazil expects fresh rate rise

GMT 20:11 2015 Tuesday ,02 June

Arab Today, arab today Brazil expects fresh rate rise

Brazil was bracing for interest rate hike
Brasília - AFP

Brazil was bracing Tuesday for a sixth straight interest rate hike as the central bank prepared to step up efforts to tackle rising inflation amid an economic downturn.

Analysts expect the bank's monetary policy committee (Copom) will Wednesday raise the key rate from 13.25 percent, already the highest level since January 2009, by 0.5 percentage points as Latin America's largest economy fights to keep a lid on rising prices.

"There is consensus on a half-point rise. We understand the central bank is firm regarding the struggle against inflation," ICAP investments economist Juliano Ferreira told AFO in Sao Paulo.

"The central bank wants to bring inflation down to its central target (4.5 percent) in 2016, not just below the tolerance threshold" of 6.5 percent, Ferreira said regarding a decision the bank will unveil after the market closes Wednesday.

April saw 12-monthly inflation hit 8.17 percent in the world's seventh-largest economy, adding to the woes of a country already hit by five years of unrelenting low growth.

Government and International Monetary Fund forecasts expect GDP to contract between 1.0 and 1.2 percent this year, which would be the worst showing in a quarter of a century.

Earlier Tuesday, the national statistical institute IBGE indicated industrial production slid 1.2 percent in April.

Analysts forecast interest rates will close out the year at 14 percent before falling back.

Industry has voiced concern about the cost of obtaining credit during a slowdown as rates continue to rise.

Brazil last month announced a package of spending cuts worth some $23 billion designed to put the country on track toward achieving an ambitious surplus of 1.2 percent of GDP this year and 2.0 percent in 2016–17.

The cuts are the largest in the 12 years that the ruling Workers Party has been in office.

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