April 15, 2013 / 12:05 PM / 5 years ago

UPDATE 2-Brazil rate hike seen imminent, economists say

* Economists see steeper rate increase in May, poll shows
    * JPMorgan, Citi, HSBC, Nomura expect rate hike this week
    * Growth, inflation view largely unchanged in c.bank survey

    By Silvio Cascione
    SAO PAULO, April 15 (Reuters) - Brazil's central bank will
probably hike interest rates at a faster pace than previously
thought to fight quickening inflation, starting with a
50-basis-point increase in May, a weekly central bank survey
showed on Monday.
    The central bank's monetary policy committee, known as
Copom, meets on April 16-17 under heavy pressure to hike rates
from a record-low 7.25 percent after inflation surpassed the
ceiling of the government's target range last month.
    Most economists still expect the central bank, which has
also been worried about Brazil's sluggish economic growth, to
leave its benchmark Selic rate unchanged in the upcoming
meeting. But many firms have changed their outlook to predict a
rate increase this week after Brazil's top two policymakers said
there will be no tolerance for rising consumer prices.
    Central bank president Alexandre Tombini on Friday said
policymakers were "closely monitoring" inflation, and Finance
Minister Guido Mantega said the government would not hesitate to
take less popular measures to fight inflation. 
    The median forecast in the survey showed most economists
still expect the central bank to leave rates unchanged this
week. However, the median forecast for interest rates at end-May
rose to 7.75 percent, from 7.50 percent a week before,
indicating a 50-point increase in May.
    Among the banks which revised their outlook to predict a
rate increase this week are JPMorgan, HSBC, Citigroup, Nomura
Securities, Bank of America Merrill Lynch and Itau Unibanco. In
a Reuters poll last week, all these firms were part of a wide
majority forecasting stable rates this week. 
    "In the history of central bank statements, whenever they
say that they are closely monitoring the incoming data, they
change the monetary policy stance at the following meeting,"
said Marcelo Kfoury, Brazil economist at Citigroup.
    Yields on rate futures jumped on Friday, suggesting most
traders expect a rate hike of 25 or 50 basis points this week.
    The central bank slashed interest rates 10 straight times
last year to help President Dilma Rousseff revive a sluggish
economy and keep unemployment rates near record lows. While the
economic recovery continues to be fragile, rising consumer
prices grabbed the headlines in recent months as food and
services prices skyrocketed.
    Interest rates were seen ending this year at 8.50 percent,
unchanged from the prior week's forecast, according to the poll.
    Economists also slightly lowered forecasts for Brazil's 2013
inflation to 5.68 percent, but kept other estimates for economic
growth and consumer prices largely unchanged, according to the
median forecast of about 100 financial institutions polled.
                      previous   new       previous  new
                      forecast   forecast  forecast  forecast
 Consumer inflation   5.70       5.68      5.70      5.70
 Exchange rate        2.00       2.00      2.05      2.05

 Interest rate        8.50       8.50      8.50      8.50

 GDP growth           3.00       3.00      3.50      3.50
 Industrial output    3.00       3.00      3.85      3.80
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