Brazil maintains key interest rate at 7.25%

Brazil's central bank kept its key interest rate unchanged at 7.25 percent Wednesday, ending a series of cuts since last year, as the world's sixth largest economy tries to contain inflation. The bank said that as it weighed inflationary risks, prospects for economic recovery and the complexity of today's international financial situation, it concluded that "stability in monetary conditions for a sufficiently long period is the right strategy for achieving" its inflation goal of 4.5 percent. The decision fell in line with analyst expectations -- some 100 monetary institutions consulted by the Central Bank weekly concurred that the bank's monetary policy committee Copom was likely to maintain the benchmark rate. Alex Agostini, chief analyst at the Austin Rating institute, said before the decision: "We expect the central bank to keep its rate at 7.25 percent until mid-2013." Last month, the central bank slashed its interest rate for the 10th time since August last year, to a record low of 7.25 percent, in a bid to stimulate the sluggish South American economy. When the cut strategy began, the interest rate stood at a historic high of 12.5 percent and inflation, at 7.2 percent, exceeded the government's target. Brazil lost steam last year, with economic growth slowing to 2.7 percent, down from a sizzling 7.5 percent in 2010. In the first half of this year, the economy expanded only 0.6 percent compared with the same period in 2011, but officials are banking on better results in the second half. Market analysts expect 1.5 percent growth this year, and a more solid 3.9 percent next year. "The worst is behind us. There is no doubt that third-quarter figures are better. We are heading for a rebound next year," said Marcelo Carvalho, chief economist of Paribas for Latin America. Market analysts appear to be mainly concerned about inflation. "We continue to believe that inflation is the main issue... It will exceed 6.5 percent next year," warned Carvalho, adding that authorities then would have to order new rate hikes. Experts expect inflation to reach 5.4 percent this year, above the official target of 4.5 percent. Last year, consumer prices rose 6.5 percent, their highest level in seven years.