UPDATE - Brazil’s central bank keeps interest rate unchanged at 10.50%

ADDS MORE FIGURES, INFO

By Ovunc Kutlu

ISTANBUL (AA) - Brazil’s central bank announced late Wednesday that it kept its benchmark interest rate unchanged at 10.50%.

"The global environment remains adverse because of the heightened and persistent uncertainty about the easing cycle in the United States and the speed of sustained disinflation in many countries," the bank’s Monetary Policy Committee (Copom) said in a statement.

"The central banks of major economies remain committed to bringing inflation back to its targets in a context characterized by labor market pressures," it added. "The Committee judges that the environment continues to require caution from emerging market economies."

Brazil's consumer inflation annually increased 3.69% in April, slowing its pace from a 3.93% year-on-year gain recorded in March, according to the Brazilian Institute of Geography and Statistics (IBGE).

On a monthly basis, however, the consumer price index rose 0.38% in April, gaining pace from a 0.16% increase in March, IBGE figures showed.

The producer price index increased 0.74% in April, rising for the third consecutive month, but it was down 0.35% annually in April compared to the same month last year.

Banco Central do Brasil last lowered its benchmark interest rate on May 8 by 25 basis points to 10.50%, down from 10.75%.

The bank had implemented a rate hike of 50 basis points in August 2022, bringing the rate to 13.75%, the highest since early 2017 and up sharply from a record low of 2% in March 2021.

It lowered the interest rate by 50 basis points to 13.25% in August 2023, its first rate cut in three years.

Copom said its inflation projections stand at 4% for 2024 and 3.4% for 2025.

The upside risks for inflation expectations include greater persistence of global inflationary pressures and the resilience of services inflation being stronger than expected, the statement said.

Downside risks to inflation, on the other hand, include global economic activity slowing down higher than estimates and monetary tightening's impact on global inflation coming in larger than projections.

"The Committee judges that the domestic and international environments remain more uncertain, requiring greater caution on the conduct of monetary policy," Copom said.

"The Committee monitors closely how the recent developments on the fiscal side impact monetary policy and financial assets."