Brazil set for another steep rate hike as inflation surges
BRASILIA, March 4 (Reuters) - Brazil is likely to raise interest rates to the highest level in six years on Wednesday, maintaining an aggressive pace of monetary tightening despite fears the once-booming economy is slipping into a deep recession.
Forty-three of 48 economists surveyed by Reuters expect the central bank to raise its benchmark Selic rate by 50 basis points for the third straight time to 12.75 percent. The remaining five forecast a 25-point hike.
The central bank has raised rates by 125 basis points since October to curb inflation that has surged in the 12 months through mid-February past the ceiling of the bank's official target range to a 12-year high of 7.36 percent.
"A sharp rise in Brazilian inflation in the first half of February has tipped the balance towards another 50 basis point increase in the Selic," Neil Shearing, chief emerging markets economist at Capital Economics, wrote in a note last week.
Brazilian President Dilma Rousseff is backing the bank's efforts with spending cuts and tax increases to ease price pressures and regain the confidence of investors distrustful of her interventionist policies.
The leftist leader's new-found austerity policies are weighing on an already slowing economy that is starting to shed jobs, undermining her popularity, and support among allies in Congress.
Economists expect the Brazilian economy to contract more than 0.5 percent this year, the steepest drop since 1990, with some warning that possible energy and water rationing could trim another 2 percentage points off growth.
While other major emerging economies embark on a new stimulus crusade, Brazil is tightening its belt to end the excesses of Rousseff's first term in office, during which the public accounts deteriorated to the point of threatening the country's investment-grade debt rating.
China cut interest rates over the weekend and could ramp up public spending, and India is bolstering spending to refurbish its crippled infrastructure. Continuación...