Brazil likely to raise interest rates again, signal more hikes

miércoles 2 de abril de 2014 01:00 GYT

By Alonso Soto

BRASILIA, April 2 (Reuters) - Brazil will likely raise interest rates for the ninth straight time on Wednesday, aiming to tame a surge in food prices that threatens to push inflation through the official target ceiling in an electoral year.

All 62 economists polled by Reuters expect the central bank to raise its benchmark Selic rate by 25 basis points to 11 percent -- what would be the highest level in more than two years.

After signaling at its last rate decision that monetary tightening was nearly done, the central bank's monetary policy committee, known as Copom, changed tack and hinted of more hikes to ease rising inflation risks.

A severe drought in Brazil's southeast has raised the prices of food items like meat and tomatoes, rekindling inflationary pressures that could hit the popularity of President Dilma Rousseff as she prepares to run for re-election in October.

"We believe the Copom will leave the door open for another hike or a no-move in the subsequent meeting, a decision that will likely depend on upcoming inflation data," economists with Banco Itau Unibanco said in a research note, which predicts a 25-basis-point hike later on Wednesday.

The mix of low economic growth and high inflation was one reason behind Standard and Poor's decision to cut Brazil's rating closer to junk territory last week.

Brazilian Central Bank President Alexandre Tombini has warned that policymakers will act to limit the effects of the food inflation spike, which he believes to be temporary.

Higher food prices pushed inflation to 5.90 percent in the 12 months to mid-March, at the upper end of the official target range of between 2.5 to 6.5 percent.   Continuación...