BRASILIA Oct 19 Brazil's central bank is poised
to cut some of the world's highest interest rates for the first
time in four years on Wednesday, in an attempt to help Latin
America's No.1 economy emerge from its deepest recession in
An overwhelming majority of analysts polled by Reuters last
week expect the central bank to reduce its benchmark Selic rate
from a 10-year high of 14.25 percent, but they are
divided over the size of the cut.
Economists are evenly split on whether the bank's monetary
policy committee, known as Copom, will trim the Selic by 25 or
50 basis points after keeping it unchanged for over a year.
"The Copom has been carefully paving the way for a rate
cut," economists with lender Itau Unibanco said in a research
note, adding that they believed the bank would opt for a 0.25
percentage point reduction.
"In the statement, we expect the Copom to signal that its
next steps will be data dependent."
The yields of interest rate futures suggest a majority of
traders are also betting on a reduction of 25 basis points.
A lower Selic would mark the start of a monetary easing
cycle under the command of the bank's new governor Ilan Goldfajn
amid growing market optimism that the economy could have already
left behind the worst of a two-year recession.
Inflation has retreated in recent months and the initial
approval of a key austerity proposal in Congress has given
Goldfajn enough arguments to trim one of the highest interest
rates among G20 nations.
A rate cut would also give a boost to President Michel
Temer's efforts to regain market confidence in an economy
battered by the political upheaval that led to the ouster of his
predecessor Dilma Rousseff earlier this year.
The recovery, however, remains tentative with high
unemployment and dwindling industrial output. Inflation at 8.48
percent remains well above the 4.5 percent center of the
That stubbornly high rate should keep the central bank
cautious, say economists expecting a moderate 25-basis-points
cut on Wednesday.
For the remaining half of analysts, the bank has enough room
to cut rates deeper with inflation expectations falling and
political momentum building for Congress to pass tough economic
(Reporting by Alonso Soto; Editing by Alistair Bell)