(Adds comments from central bank chief)
By Alonso Soto and Silvio Cascione
BRASILIA, April 10 Brazil's central bank on
Thursday signaled its year-long monetary tightening cycle is
coming to an end, but left the door open for one more rate
increase to tame a spike in inflation.
In the minutes of its last rate-setting meeting on April 2,
the bank said most of the effects of past rate hikes on
inflation should be felt in coming months, hinting it may not
need to further increase borrowing costs. The central bank then
decided to hike rates by 25 basis points to 11 percent.
However, since that meeting new data showing a pick up in
inflation has raised pressure on policymakers to make one final
increase of 25 basis points in May.
"This reaffirms the view that the bank is getting ready to
end the cycle," said Enestor dos Santos, Brazil economist with
BBVA in Madrid. "The big question is whether the minutes remain
relevant after March's inflation figure. I believe it does."
Prices rose sharply in March, bringing inflation dangerously
close to the ceiling of the official target of 6.5 percent.
Annual inflation rose to 6.15 percent last month, topping all
estimates in a Reuters poll.
Brazilian central bank chief Alexandre Tombini told
reporters in Washington later on Thursday that the bank will
monitor the behavior of prices and economic conditions to make
the "best decisions."
He said that inflation in the service sector has been easing
very gradually because of its rapid pace of growth.
Brazil interest rate futures <0#DIJ:> dropped across the
board after the release of the minutes, meaning traders expect
the bank to halt the rate-hiking cycle soon.
The yield curve of interest rate futures implied a 55
percent possibility of a 25-basis-point rate hike in May,
according to Thomson Reuters data.
Even after raising rates by 375 basis points in a year, the
central bank is struggling to tame inflation that has gained
speed due to an increase in food prices following a severe
drought in southeastern Brazil.
In the minutes, the bank reiterated that the spike in food
prices should be temporary, but that monetary policy will remain
"Assuming that the effects of monetary policy actions on
inflation are cumulative and manifest themselves with lags, the
bank believes that a significant part of the response of prices
to the current monetary tightening cycle is yet to materialize,"
the bank said.
(Additional reporting by jason Lange in Washington; Writing by
Alonso Soto; Editing by Lisa Von Ahn, Meredith Mazzilli and