February 15, 2018 / 11:38 AM / a year ago

UPDATE 1-Brazil c.bank divided on how strongly to signal end of rate cuts

(Recasts throughout with details, context)

By Bruno Federowski

SAO PAULO, Feb 15 (Reuters) - Members of Brazil’s central bank policy board diverged last week over how strongly to hint at the end of interest rate, though all agreed that reductions should cease if the economic outlook evolves as expected, the bank said on Thursday.

In the minutes of the central bank’s Feb. 7 monetary policy meeting, the bank repeated its message that the deepest easing cycle in a decade is close to an end. Still, it could pursue a final rate cut next month if inflation continues to underwhelm, the bank said.

“Some members expressed a preference for a high level of flexibility, favoring more symmetric communication about the next step, while others proposed to signal more strongly the possible interruption of the monetary easing cycle and to maintain freedom of action, but to a lesser extent,” the minutes said.

Last week, the central bank cut the benchmark Selic interest rate by 25 basis points, as widely expected, to an all-time low of 6.75 percent, and it strongly hinted at the end of the easing cycle.

The cut came despite a selloff in global stock markets as a jump in U.S. wages raised questions about the pace of rate hikes there, sending shock waves through developed and emerging markets alike.

Still, consumer price figures released since then came in sharply below economist forecasts, raising doubt over the bank’s plans as inflation remains stubbornly below the bottom-end of the official target.

Yields on interest rate futures suggested a sizeable minority of traders expected a final rate cut at the bank’s March meeting, though bets on the bank standing pat remained dominant.

The minutes stressed that the central bank has the leeway to adjust policy both to slower-than-expected inflation and to a worsening of global financial conditions.

Economists agree, however, that keeping interest rates at low levels will hinge on policymakers’ ability to curb government spending, a task that looks increasingly difficult as this year’s presidential elections approach. (Reporting by Bruno Federowski; Editing by Mark Heinrich)

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