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Brazil expected to keep interest rate flat

bancoBRASILIA: Brazil's central bank was expected to keep its key interest rate unchanged at 7.25 percent later Wednesday, with a faster growth rate on the horizon.


"We expect the central bank to keep its rate at 7.25 percent until mid-2013," said Alex Agostini, chief analyst at the Austin Rating institute.


And some 100 monetary institutions consulted by the Central Bank weekly concurred that the bank's monetary policy committee Copom was likely to keep the rate flat.


The announcement was expected to be made after markets close late Wednesday.


Last month, the central bank slashed its interest rate for the 10th time since August last year, to a record low of 7.25 percent, in a bid to stimulate the sluggish economy.


The cut strategy began in August 2011, when the interest rate stood at a historic high of 12.5 percent and inflation, at 7.2 percent, exceeded the government's target.


The world's sixth largest economy lost steam last year, with GDP growth slowing to 2.7 percent, down from a sizzling 7.5 percent in 2010.


In the first half of this year, the economy expanded only 0.6 percent compared with the same period in 2011 but officials are banking on better results in the second half.


Market analysts expect 1.5 percent growth this year, and a more solid 3.9 percent next year.


"The worst is behind us. There is no doubt that third-quarter figures are better. We are heading for a rebound next year," said Marcelo Carvalho, chief economist of Paribas for Latin America, said Monday.


Market analysts appear to be mainly concerned about inflation.


"We continue to believe that inflation is the main issue. (...) It will exceed 6.5 percent next year," warned Carvalho, adding that authorities would then have to order new rate hikes.


Experts expect inflation to reach 5.4 percent this year, above the official target of 4.5 percent.


Last year, consumer prices rose 6.5 percent, their highest level in seven years.


Copyright AFP (Agence France-Presse), 2012


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