(Adds analyst comment and market predictions, paragraphs 6, 9,
By Alonso Soto
BRASILIA May 28 Brazil will likely stop raising
interest rates on Wednesday to avoid choking an already weak
economy even if inflation remains stubbornly high.
The central bank's 8-member monetary policy committee, known
as Copom, is expected to pause one of the world's
longest-running tightening cycles, which lifted rates from
record lows to two-year highs in only a year.
Forty-eight of 58 economists surveyed by Reuters expect the
central bank to keep its benchmark Selic rate on
hold at 11 percent. Only 10 forecast a 25-basis-point hike,
which would be the tenth in a row since April 2013.
High interest rates and dwindling business confidence has
hit the Brazilian economy, which is expected to slow again this
year after a surprise jump in late 2013 that briefly raised
hopes of a steady recovery.
Latin America's largest economy likely grew just 0.2 percent
in the first quarter from the previous quarter, slowing from a
0.7 percent expansion in the prior reading, according to the
median of 27 forecasts in a Reuters poll.
A reprieve in inflation in April after a surge in food
prices earlier in the year and a strengthening of the Brazil's
real currency have also given the central bank more room
to halt its rate-hiking cycle.
Central bank chief Alexandre Tombini has said repeatedly
that past rate hikes have started to curb inflation even though
it will take more time for the full impact to be felt on prices.
Analysts interpreted his comments to mean authorities will
pause the cycle to see whether past hikes will do more to tame
inflation, which remains near the ceiling of the official target
range of between 2.5 and 6.5 percent.
The market sees a 74 percent probability that the bank will
leave the Selic unchanged, according to Thomson Reuters data
"We expect the Copom to keep the Selic unchanged at 11
percent, as the authorities have repeatedly signaled that they
intend to pause," Deutsche Bank economist Jose Carlos Faria said
in a research note on Wednesday.
"The latest data showing that economic activity is weakening
will probably influence the central bank's decision."
Still, some other economists say the bank will be forced to
raise rates late this year or next to bring inflation toward the
4.5 percent center of the target range.
The last time Brazil's annual inflation hit the target
center was in August 2010.
Although monthly inflation slowed in April, the annual rate
rose to 6.28 percent and is expected to rise further with the
World Cup soccer tournament driving up prices for airfare, hotel
rooms and restaurant meals in June and July.
Higher inflation and a further dip in economic growth could
hurt the popularity of President Dilma Rousseff as she prepares
to run for re-election on October 5.
Still, some analysts feel the bank should bite the bullet
and do more to anchor inflationary expectations now, even if
economic activity suffers.
"The costs for the economy of a larger monetary tightening
would be compensated by less inflation resistance in the medium
term," Votorantim Corretora chief economist Roberto Padovani in
said a note.
(Reporting by Alonso Soto; Editing by Meredith Mazzilli and W