3 de septiembre de 2014 / 5:04 / en 3 años

Brazil set to maintain interest rates ahead of election

3 MIN. DE LECTURA

BRASILIA, Sept 3 (Reuters) - Brazil will likely keep interest rates on hold for the third straight time on Wednesday, refraining from any monetary action to help an economy that has fallen into recession just weeks before a heated presidential election.

All 53 economists polled by Reuters said the central bank's 8-member monetary policy committee, known as Copom, will keep its benchmark Selic rate at a more-than two year high of 11 percent.

The decision to keep rates unchanged is not an easy one for a central bank under growing pressure to do more to rescue an economy that entered recession in the first half of the year.

However, persistently high inflation and a closely contested October election is expected to keep policymakers in wait-and-see mode for a while, analysts say.

"The recession exerts great pressure on the central bank to support the economy," said Neil Shearing, senior economist with Capital Economics in London. "But any policy stimulus at this point is a risk. It could do more harm than good."

The central bank has signaled it will keep rates stable for some time as past monetary tightening drags down inflation, which on an annual basis remains near the ceiling of the official target of 4.5 percent with a tolerance margin of plus or minus 2 percentage points.

Over the last three years under its chief Alexandre Tombini, the central bank slashed rates to record lows of 7.25 percent only to make a u-turn and raise rates to two-year highs as inflation kept climbing despite a weaker economy.

The government of President Dilma Rousseff has partly blamed higher rates for the country's first recession in five years. Finance Minister Guido Mantega has said he will work to create conditions for the bank to cut rates in 2015.

Investors are betting interest rates will likely drop next year as polls show Rousseff losing the election in a run-off vote against environmentalist Marina Silva. Many analysts believe Silva would adopt more market-friendly policies to ease inflationary pressures that have surged under the four-year rule of leftist Rousseff.

"Silva's program has measures that the market believes will restore the country's economic stability," said Luciano Rostagno, chief strategist with Mizuho Bank in Sao Paulo. "That is reflected in the yield of long-term interest rate futures."

Brazil's interest-rate futures have fallen over the last two weeks after Silva was thrust into the candidacy following the death of her running mate Eduardo Campos in a plane crash. Yields paid on Brazil's interest-rate contracts for April 2016 slid 3 basis points.

Although Silva has not said if rates should be cut next year, she has promised to give full independence to the central bank -- a long-held demand of investors and financial markets. She is also expected to change the leadership of the bank. (Reporting by Alonso Soto; editing by Andrew Hay)

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