Brazil Selic to Stay High Until Inflation Nears Target, IMF Says

Brazil Selic to Stay High Until Inflation Nears Target, IMF Says

by David Biller/Bloomberg
6:31 PM BRT
May 12, 2015

Brazil’s monetary policy will remain tight until inflation approaches the mid-point of the central bank’s target range, the International Monetary Fund said in a report Tuesday.
While inflation is expected to converge to the 4.5 percent center of the target range in the medium term, more policy tightening is needed for it to do so in 2016 as the central bank intends, the IMF said in its report. The IMF staff report was completed March 4, and is the result of discussions concluded with Brazilian authorities in mid-December.
Brazil’s central bank has raised the benchmark Selic five straight times to its highest level since January 2009. In the minutes from its most recent meeting, bank directors said gains in the fight against inflation remain insufficient, prompting traders to reinforce bets on a continued half-point increase to the Selic.
“Staff also expects some moderate additional tightening in the SELIC and the TJLP (long-term lending rate) in 2015, with the monetary policy stance remaining tight until inflation approaches the 4.5 percent target,” the IMF wrote in the report. “Although, with the hump in regulated-price inflation behind, policy could ease at the margin in 2016.”
Annual inflation was 8.17 percent in April, whereas the central bank targets inflation of 2.5 percent to 6.5 percent. The monetary authority boosted the Selic to 13.25 percent at its policy meeting last month.
The IMF forecasts Brazil’s economy will contract 1 percent in 2015, compared with the median forecast of 1.2 percent from economists surveyed by the central bank. Part of the slowdown is due to austerity measures the government is implementing to meet its 1.2 percent of GDP budget surplus target, which excludes payments on interest.