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“Brazil interest rate hike positive for markets”
October 30, 2014, 9:15 am

The Central bank said the inflation risks have changed since their last meeting in September [Image: gov.br]

The Central bank said the inflation risks have changed since their last meeting in September [Image: gov.br]

Brazilian Central bank’s (BCB) move on Wednesday to raise its policy rate by 25bp to 11.25 per cent is a sign that reelected President Dilma Rousseff will be more market-friendly, analysts concluded.

The bank said the inflation risks have changed since their last meeting in September.

“In light of that, the committee considered it appropriate to adjust monetary conditions in order to guarantee, at a lower cost, the prevalence of a more benign inflation outlook in 2015 and 2016,” the Brazilian Central bank said in its statement.

The BCB’s target is to keep annual inflation at 4.5 per cent.

“It might be a move from president Rousseff’s side to show she will be more market friendly in her second term. We will probably see more rate hikes and are currently revising our forecast. The hike is likely to be positive for markets,” said Nordea Research in an emailed statement.

President Dilma Rousseff of Brazil has won a second term in Brazil, taking 51.64 percent of the vote to 48.36% for centrist Aecio Neves.

Brazilian Finance Minister Guido Mantega said after Rousseff’s victory on Sunday that the poll results showed popular approval for Rousseff’s economic policies.

Election data showed that most of Rousseff’s votes came from the poorer north and northeast, where social programs begun by former-President Lula and continued by Rousseff, both of the Workers’ Party (PT), have lifted millions from poverty. Wealthy population centres in the south and southeast, where people were more concerned about economic stagnation and foreign investment, tended to vote for Neves, speaking to a polarisation along class lines that has characterised much of the race.

Rousseff on Sunday called for national unity and vowed to reinvigorate the country’s flagging economy during her second term.

Faced with an underwhelming performance in recent years of the Brazilian economy, the world’s seventh largest, the president vowed to take special moves to boost her country’s economic recovery.

Rousseff said the government would work towards ensuring high levels of employment and the recovery of wages and fight inflation.

“We will give more impetus to economic activity in all sectors, and particularly in the industrial sector,” added the president.

 

 TBP

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