* Central bank likely to hold Selic rate at 7.25 percent
* Bank seen keeping rate at record lows in 2013
* High inflation outweighs worries over slow-paced recovery
By Alonso Soto
BRASILIA, Nov 28 Brazil will likely end an
aggressive year-long cycle of interest rate cuts on Wednesday,
leaving its benchmark rate unchanged at 7.25
percent to try to keep a lid on inflation despite doubts about
the strength of recovery in the world's No. 6 economy.
All 60 analysts polled by Reuters expect the central bank's
monetary policy committee to opt for a pause its rate-cutting
cycle after 10 s t raight cuts that brought rates to a record low.
A majority of market traders also predict a pause, with only
16 percent betting on another cut of 25 basis points, according
to Thomson Reuters data.
A barrage of government stimulus measures and steep interest
rate cuts have started to slowly pull the economy out of near
stagnation, but they have also stoked fears of higher inflation
in coming years in a country scarred by a history of runaway
"Inflation at the moment is not such a big issue, but if you
look ahead it could become a problem because inflationary
pressures are here and annual inflation remains close to the
ceiling of the target," said Cristian Maggio, emerging market
strategist at TD Securities in London.
"They (central bank) are done with the easing cycle, and
will hold interest rates at the current level for the whole of
next year," Maggio predicted.
Low interest rates have been one the main priorities of
President Dilma Rousseff as she struggles to bring back the
impressive growth rates that made Brazil a Wall Street darling
in the past decade.
The central bank seems in no hurry to raise rates, saying
that rates could remain stable for a "sufficiently prolonged
period of time". A majority of analysts polled by Reuters last
week forecast the benchmark rate will stay at 7.25 percent
The bank has acknowledged that low rates could keep
inflation above the center of the official target range of 4.5
percent - plus or minus two percentage points - for the next
couple of years. The bank insists, however, that it will not
allow prices to pierce the ceiling of 6.5 percent.
Central bank President Alexandre Tombini said last week that
the economy will surely recover with inflation under control.
Inflation quickened to 5.64 percent in the month to mid-November
and is expected to end the year at 5.4 percent.
PRESSURE BUILDS UP
However, the slow-moving recovery and a fragile global
economy could raise pressure on Brazilian policymakers to inject
more stimulus into the economy.
Rousseff has already hinted that the country's currency, the
Brazilian real, could depreciate further to revive what
has been the weakest leg of the economy: manufacturing. A weaker
currency helps manufacturers battle foreign competition, but
also raises inflationary pressures at home.
Brazil's economy will likely grow just 1.5 percent this year
even after billions of dollars in tax breaks and cheap loans
released by the Rousseff administration. The 525 basis points in
rate cuts by the central bank have helped lift the economy, but
may not be enough to rekindle growth above 4 percent per year.
Private economists are starting to lower their 2013 growth
estimates to a shade below 4 percent after a weak economic
activity print in September and a drop in confidence levels
point to an uneven recovery ahead.
Analysts at Morgan Stanley warn that the market remains
overly optimistic about the vitality of the Brazilian economy as
investment shows no signs of a strong rebound going into 2013.
The U.S. investment bank predicts the Brazilian economy will
grow a meager 2.8 percent next year.
Anemic investment, high production costs and lack of
skilled labor are blamed for stunting growth in Brazil as
consumers start to reach their debt limits after a credit boom.
The central bank will announce its rate decision after 6
p.m. (2000 GMT).