Last night, The Central Bank of Brazil kept its benchmark rate steady at 8.75%, against market expectations. It was not an unanimous decision, as five members voted for keeping rates flat while the other three voted for increasing rates by 50 bps.
Some argue that tightening now would have been the best choice as the economy might be growing above sustainable levels and inflation expectations have been climbing constantly for the past weeks. After being flat since 2008, inflation expectations reached 5.03% for 2010 and 4.60% for 2011. The malicious question would be if this decision has any political hidden agenda. In an election year, economic growth is certainly welcomed, whether it is healthy or not in the long term.
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