| BRASILIA, April 2
BRASILIA, April 2 Brazil will likely raise
interest rates for the ninth straight time on Wednesday, aiming
to tame a surge in food prices that threatens to push inflation
through the official target ceiling in an electoral year.
All 62 economists polled by Reuters expect the central bank
to raise its benchmark Selic rate by 25 basis
points to 11 percent -- what would be the highest level in more
than two years.
After signaling at its last rate decision that monetary
tightening was nearly done, the central bank's monetary policy
committee, known as Copom, changed tack and hinted of more hikes
to ease rising inflation risks.
A severe drought in Brazil's southeast has raised the prices
of food items like meat and tomatoes, rekindling inflationary
pressures that could hit the popularity of President Dilma
Rousseff as she prepares to run for re-election in October.
"We believe the Copom will leave the door open for another
hike or a no-move in the subsequent meeting, a decision that
will likely depend on upcoming inflation data," economists with
Banco Itau Unibanco said in a research note, which predicts a
25-basis-point hike later on Wednesday.
The mix of low economic growth and high inflation was one
reason behind Standard and Poor's decision to cut Brazil's
rating closer to junk territory last week.
Brazilian Central Bank President Alexandre Tombini has
warned that policymakers will act to limit the effects of the
food inflation spike, which he believes to be temporary.
Higher food prices pushed inflation to 5.90 percent in the
12 months to mid-March, at the upper end of the official target
range of between 2.5 to 6.5 percent.
That surge in food prices has overshadowed a moderate
pick-up in activity at the start of the year, which briefly
raised hopes that the Brazilian economy may perform better than
expected after three years of sub-par growth.
A more rapid increase in food prices could hit domestic
consumption, which has been the country's main engine of growth
as investment has remained subdued in recent years.
Other price pressures could come from an increase in the
prices of fuel and electricity, which the government is trying
to contain, but that economists believe ultimately will have to
rise either this year or next.
HIGH INFLATION EXPECTATIONS
The bank's aggressive tightening cycle, which has added 350
basis points to the Selic since April 2013, has so far done
little to ease inflation as well as expectations.
Inflation expectations for 2014 have risen from 5.86 percent
in early February to 6.30 percent last week, according to a
weekly central bank poll of economists.
The central bank itself raised its 2014 inflation forecast
to 6.1 percent from 5.6 percent previously, highlighting the
difficulties policymakers face to lower stubbornly high prices
in Latin America's top economy.
In its quarterly inflation report, the bank acknowledged
there was a 40 percent chance that inflation could move above
the target's ceiling of 6.5 percent.
The market has speculated that the bank is allowing the
Brazilian real to strengthen in recent weeks as a way to
battle inflation. A stronger real, which has gained 4 percent
against the US dollar this year, reduces the prices of imports.
(Reporting by Alonso Soto; Editing by Leslie Adler)