Brazil’s central bank signaled on Thursday that further interest rate cuts are unlikely because they won’t solve the causes of the country’s economic slump, sending a strong message to investors that inflation remains its top priority.
The bank acknowledged for the first time that interest rate cuts might prove ineffective to fight the bottlenecks and the production gaps that are weighing on the world’s No. 6 economy.
In the minutes from its last rate-setting meeting on Jan. 16, the bank said that the economic recovery has been painfully slow “essentially due to limitations on the supply side.”
It added that monetary policy is unable to address those issues because it is a tool meant to control demand.
That more hawkish language was taken as a signal that the central bank will keep rates at the current 7.25 percent for a long time or even hike them later this year or early in 2014.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.