Brazilian Central Bank more hawkish than expected

To no one’s surprise, the Brazilian Central Bank kept the country’s benchmark interest rate unchanged at 13.75 percent, where it has been since last August. But, in its statement to the markets, the bank was much more hawkish than expected.

“The Monetary Policy Committee emphasizes that it will persist until the disinflationary process consolidates and inflation expectations anchor around its targets,” reads the release. 

Many analysts thought the Central Bank would signal potential rate cuts for when the committee convenes again in May. It didn’t. “The Committee reinforces that future monetary policy steps can be adjusted and will not hesitate to resume the tightening cycle if the disinflationary process does not proceed as expected.”

In more normal times, the current economic conditions would preclude any discussion of interest rate cuts in the near term. Inflation remains high (5.6 percent in 12 months) and widespread, consumer price expectations have deteriorated, and uncertainty remains about the country’s fiscal outlook.

Since the committee’s previous meeting, however, concerns about credit availability in Brazil have intensified and a banking crisis hangs over the global economy, rekindling recession fears.

Wednesday’s hawkish statement will certainly enhance tensions between the monetary authority and the government. The Luiz Inácio Lula da Silva administration is using the authority as a straw man to convince voters that it bears no responsibility for the economic malaise, especially as the bank’s current board was appointed by Lula’s predecessor, Jair Bolsonaro.

In an interview this week, Lula said keeping the benchmark interest rate at 13.75 percent would be “irresponsible.” He also promised to “keep bashing” the bank.

The Brazilian Central...