UPDATE 1-Brazil set to pause interest rate hikes to shield economy

miércoles 28 de mayo de 2014 08:13 GYT

(Adds analyst comment and market predictions, paragraphs 6, 9, 10-12)

By Alonso Soto

BRASILIA May 28 (Reuters) - Brazil will likely stop raising interest rates on Wednesday to avoid choking an already weak economy even if inflation remains stubbornly high.

The central bank's 8-member monetary policy committee, known as Copom, is expected to pause one of the world's longest-running tightening cycles, which lifted rates from record lows to two-year highs in only a year.

Forty-eight of 58 economists surveyed by Reuters expect the central bank to keep its benchmark Selic rate on hold at 11 percent. Only 10 forecast a 25-basis-point hike, which would be the tenth in a row since April 2013.

High interest rates and dwindling business confidence has hit the Brazilian economy, which is expected to slow again this year after a surprise jump in late 2013 that briefly raised hopes of a steady recovery.

Latin America's largest economy likely grew just 0.2 percent in the first quarter from the previous quarter, slowing from a 0.7 percent expansion in the prior reading, according to the median of 27 forecasts in a Reuters poll.

A reprieve in inflation in April after a surge in food prices earlier in the year and a strengthening of the Brazil's real currency have also given the central bank more room to halt its rate-hiking cycle.

Central bank chief Alexandre Tombini has said repeatedly that past rate hikes have started to curb inflation even though it will take more time for the full impact to be felt on prices.   Continuación...