BRASILIA: Brazil's central bank signaled it would keep interest rates high for some time to curb inflation, resisting pressures to cut borrowing costs to help lift the economy out of a recession.
In the minutes released Thursday from its last rate-setting meeting, the bank said keeping interest rates at current levels, the highest since 2012, would bring inflation down toward the official target of 4.5 percent.
The bank last week kept its benchmark Selic rate on hold at 11 percent for the third straight policy meeting. It also altered its decision statement to suggest it would maintain the high rates at least until the end of this year.
"The central bank very strongly suggests that it does not intend to cut rates," said Gustavo Rangel, chief economist for Latin America at ING. "What we have here is the maintenance of a fairly neutral guidance, but it's a very short-term guidance because it will all depend on who wins the election."
Ahead of presidential elections next month, politically powerful industrial groups have lobbied the bank to cut interest rates.
Those pressures grew after data released two weeks ago showed that Brazil slipped into recession early in 2014 for the first time in five years.
The bank has eased some reserve requirements to bolster credit but kept interest rates high to avoid any criticism of undue intervention before the contested presidential election.
The bank acknowledged that the expansion of economic activity would be less intense this year than in 2013, according to the minutes.
A surprise drop in retail sales in July was a reminder of the weak state of the Brazilian economy, which is expected to barely grow in 2014 after expanding a staggering 7.5 percent in 2010.
The bank also said inflation would remain high and vowed to stay vigilant to battle price increases.
The bank said its year-end 2014 inflation estimate fell from the previous meeting, but its year-end 2015 projection remained stable. It added that its forecasts for the initial quarters of 2016 showed inflation converging toward the target.
The central bank's official target is 4.5 percent, with a tolerance range of plus or minus 2 percentage points. Annual inflation is currently at 6.5 percent.
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