By Luciana Lopez
SAO PAULO, Sept 2 (Reuters) - The Brazilian central bank's decision to leave interest rates at a record low will have effects far beyond its next monetary policy committee meeting on Oct. 20 and 21.
Central bankers on Wednesday kept the benchmark interest rate, the Selic, on hold at 8.75 percent, having hacked 500 basis points off the rate from January through July.
The committee's decision not only carries long-term policy implications, it could also send a signal that Brazil is a step closer to joining the ranks of more developed economies.
STAYING THE COURSE
* An unaltered rate reflects policymaker opinions that previous rate cuts may have done the trick of helping jump-start Brazil's economy.
* Policymakers had slashed the Selic five times in a row this year as the global economic crisis reached Brazilian shores, in an effort to stimulate the country's economy, expand credit and boost liquidity.
* Recent data, including an unexpected fall in the July jobless rate, gains of around 50 percent in the benchmark stock index since January and better-than-expected June retail sales all suggest Brazil has turned the corner on recession.
* But the cuts have come thick and fast -- so fast, in fact, that bankers haven't had time to stop, evaluate the aggregate impact and let long-term adjustments play out.
* The monetary easing since January has 'delayed and cumulative effects,' policymakers noted in their July meeting minutes, adding that the 8.75 percent rate was consistent with a benign inflationary outlook.
* Maintaining the same rate through the September meeting gives policymakers the time they need to weigh those effects and judge whether the economy is indeed on the right track.
* The longer policymakers keep the rate low, the less likely the Selic is to match its former peaks whenever hikes resume. In the past decade, that's meant rates as high as 45 percent, with attendant double-digit inflation.
* '(A) more cautious stance will contribute to mitigate the risk of abrupt reversals in monetary policy in the future,' read another section of the July minutes.
* 'If (Brazil) can keep inflation in lower single digits and (interest) rates in single digits for as long as possible, that increases the odds that they can entrench structurally lower rates,' said Paul Biszko, emerging markets strategist at RBC Capital Markets in Toronto.
INTERNATIONAL EFFECTS
* Steady, relatively low rates give Brazil added credibility among global investors, who have long eyed Brazil's high interest rates askance.
* 'One of the most common questions among foreign investors is, 'Why are (interest) rates in Brazil so high?'' said Mauricio Khedi Molan, senior economist with Grupo Santander Brasil. 'Investors still see it as a sign of abnormality.'
* An 8.75 percent benchmark interest rate keeps Brazil in line with its peers.
* Among the so-called BRIC emerging economies, comprising Brazil, Russia, India and China, interest rates range from 4.75 in India to 10.75 percent in Russia.
* 'This shows Brazil can reduce rates significantly,' said Silvio Campos Neto, chief economist with Banco Schahin in Sao Paulo. 'This could end up being sustainable.'
* Brazil's new ability to maintain lower rates underscores recent progress stabilizing Latin America's largest economy -- in effect setting the country down a transformative path.
* 'Brazil has changed,' said Otavio Vieira, director of investments at Safdie Gestao de Patrimonio in Sao Paulo, noting an economy boasting lower interest rates, among other changes. 'It's a different country, despite its problems.'
(Editing by Todd Benson and Andrew Hay) Keywords: BRAZIL ECONOMY/RATES (luciana.f.lopez@thomsonreuters.com; Reuters Messaging: luciana.f.lopez.thomsonreuters.com@reuters.net; Tel: +55 11-5644-7756) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
SAO PAULO, Sept 2 (Reuters) - The Brazilian central bank's decision to leave interest rates at a record low will have effects far beyond its next monetary policy committee meeting on Oct. 20 and 21.
Central bankers on Wednesday kept the benchmark interest rate, the Selic, on hold at 8.75 percent, having hacked 500 basis points off the rate from January through July.
The committee's decision not only carries long-term policy implications, it could also send a signal that Brazil is a step closer to joining the ranks of more developed economies.
STAYING THE COURSE
* An unaltered rate reflects policymaker opinions that previous rate cuts may have done the trick of helping jump-start Brazil's economy.
* Policymakers had slashed the Selic five times in a row this year as the global economic crisis reached Brazilian shores, in an effort to stimulate the country's economy, expand credit and boost liquidity.
* Recent data, including an unexpected fall in the July jobless rate, gains of around 50 percent in the benchmark stock index since January and better-than-expected June retail sales all suggest Brazil has turned the corner on recession.
* But the cuts have come thick and fast -- so fast, in fact, that bankers haven't had time to stop, evaluate the aggregate impact and let long-term adjustments play out.
* The monetary easing since January has 'delayed and cumulative effects,' policymakers noted in their July meeting minutes, adding that the 8.75 percent rate was consistent with a benign inflationary outlook.
* Maintaining the same rate through the September meeting gives policymakers the time they need to weigh those effects and judge whether the economy is indeed on the right track.
* The longer policymakers keep the rate low, the less likely the Selic is to match its former peaks whenever hikes resume. In the past decade, that's meant rates as high as 45 percent, with attendant double-digit inflation.
* '(A) more cautious stance will contribute to mitigate the risk of abrupt reversals in monetary policy in the future,' read another section of the July minutes.
* 'If (Brazil) can keep inflation in lower single digits and (interest) rates in single digits for as long as possible, that increases the odds that they can entrench structurally lower rates,' said Paul Biszko, emerging markets strategist at RBC Capital Markets in Toronto.
INTERNATIONAL EFFECTS
* Steady, relatively low rates give Brazil added credibility among global investors, who have long eyed Brazil's high interest rates askance.
* 'One of the most common questions among foreign investors is, 'Why are (interest) rates in Brazil so high?'' said Mauricio Khedi Molan, senior economist with Grupo Santander Brasil. 'Investors still see it as a sign of abnormality.'
* An 8.75 percent benchmark interest rate keeps Brazil in line with its peers.
* Among the so-called BRIC emerging economies, comprising Brazil, Russia, India and China, interest rates range from 4.75 in India to 10.75 percent in Russia.
* 'This shows Brazil can reduce rates significantly,' said Silvio Campos Neto, chief economist with Banco Schahin in Sao Paulo. 'This could end up being sustainable.'
* Brazil's new ability to maintain lower rates underscores recent progress stabilizing Latin America's largest economy -- in effect setting the country down a transformative path.
* 'Brazil has changed,' said Otavio Vieira, director of investments at Safdie Gestao de Patrimonio in Sao Paulo, noting an economy boasting lower interest rates, among other changes. 'It's a different country, despite its problems.'
(Editing by Todd Benson and Andrew Hay) Keywords: BRAZIL ECONOMY/RATES (luciana.f.lopez@thomsonreuters.com; Reuters Messaging: luciana.f.lopez.thomsonreuters.com@reuters.net; Tel: +55 11-5644-7756) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.