| BRASILIA, July 16
BRASILIA, July 16 Brazil will likely keep
interest rates steady for the second straight time on Wednesday
and signal it will leave them there for some time even after
inflation hit the ceiling of its target range.
At its last meeting on May 28, the central bank's monetary
policy committee halted its year-long rate-hiking campaign and
held its benchmark Selic rate at 11 percent to give a respite to
an economy that is again flirting with recession.
Disappointing growth data will likely keep the central bank,
led by Alexandre Tombini, from raising interest rates for the
rest of 2014 even though inflation is expected to stay high for
the next two years.
"We believe that even with inflation hovering around the
target's ceiling, slow economic growth will force the central
bank to keep interest rates at this level until at least the end
of 2014," economists with Santander wrote in a research note.
All 60 economists surveyed in a Reuters poll last week
predicted that Brazil's central bank will hold interest rates,
with most saying they expect the bank to leave rates unchanged
for the rest of the year.
The mix of high inflation and slow economic growth poses a
major challenge for Tombini and President Dilma Rousseff, whose
popularity has suffered in recent months as Brazilians grow
increasingly frustrated with the weak economy and rising prices.
Nevertheless, polls show Rousseff remains the frontrunner
heading into presidential elections on Oct. 5, though her
political rivals are using Brazil's mounting economic woes to
attack the leftist leader.
The central bank is trying to cool inflation expectations by
insisting that a Selic rate at 11 percent is enough to bring the
IPCA consumer price index back toward the 4.5 percent center of
the target range in 2015 and 2016.
Goldman Sachs economist Alberto Ramos believes the central
bank will remove the phrase "at this moment" from Wednesday's
monetary policy statement to cement the idea that policymakers
will leave rates stable for some time.
A still overvalued Brazilian real, that is bound to
weaken, and naggingly high inflation will likely push the
central bank to ultimately lift rates in 2015, Ramos said.
"All this due to the inability to tighten fiscal policy and
the reluctance to hike rates further to get a firmer grip on
inflation," he said in a research note.
A surge in government spending ahead of the elections,
combined with supply bottlenecks and high demand for services
have kept inflation well above the center of the target range
Prices have eased on a monthly basis since March, but
12-month inflation hit the 6.5 percent target ceiling in June.
Inflation is expected to remain under pressure going forward, in
part because certain government-regulated prices such as
gasoline and electricity fares are due to be raised.
(Editing by Todd Benson and Andrew Hay)