Brazil's Central Bank Holds Interest Rates

Brazil's central bank kept the overnight rate unchanged for a fourth straight meeting as slowing inflation bolstered confidence the bank's annual target will be met. Policy makers, led by bank President Henrique Meirelles, held the benchmark interest rate at a record low 11.25 percent. Monthly inflation, measured by the benchmark IPCA index, slowed in January to 0.54 percent from 0.74 percent a month earlier.

The central bank brought Brazil's longest cycle of monetary easing since at least 1999 to a halt last October after higher food prices coupled with the fastest economic expansion in more than three years raised concern that inflation could overshoot policy makers' 4.5 inflation target.

Annual inflation in Brazil has been steadily increasing from an eight- year low of 2.96 percent last March to 4.74 percent through mid-February. Since January, the 12-month inflation rate has persistently exceeded the mid-point of the central bank's target of 4.5 percent plus or minus 2 percentage points.

Meat and milk prices were the main driver of inflation in the second half of last year. Food prices in 2007 jumped 10.8 percent, the most in five years, fueled by rising worldwide consumer demand for commodities. Monthly food price inflation decelerated to 1.52 percent in January from a five-year high of 2.06 percent in December.

The yield on the inter-bank deposit contract for Jan. 2, 2009, which reveals trader's future interest rate bets, fell to 11.69 percent from 12.07 percent on Dec. 28. Record-low interest rates coupled with record bank lending has stoked a surge in demand for consumer goods such as home appliances and cars in what is Latin America's biggest economy.

Retail sales were up by 9.6 percent in 2007, the biggest gain since the national statistic agency started the current series in 2001, while industrial output rose less than expected in January, increasing by 8.5 percent from January 2007.