29 de abril de 2015 / 5:03 / en 2 años

Brazil readies a steep interest rate rise to salvage credibility

BRASILIA, April 29 (Reuters) - Brazil is poised to deliver another big interest rate increase on Wednesday as the government tries to convince investors it is committed to taming high inflation, despite the risk of recession.

The central bank’s 9-member monetary policy committee is widely expected to raise the Selic rate 50 basis points - the fourth straight increase since December - to 13.25 percent, the highest in six years.

The Selic towers above the interest rates of fellow emerging economies India and Turkey, both at 7.5 percent. While those countries and other major economies have cut rates to shore up growth, Brazil has raised its rate 175 basis points in just six months.

Only six of the 48 analysts polled by Reuters last week believe the bank will increase the rate by 25 basis points.

The central bank is spearheading efforts by President Dilma Rousseff to salvage credibility with investors after years of interventionist policies and lavish spending jacked up prices and threatened Brazil’s investment grade rating.

The central bank was sharply criticized for bringing interest rates to a record low of 7.25 percent in 2012 to bolster a slow-moving economy, despite pressure on prices.

Now, aided by aggressive fiscal tightening, the central bank has promised to bring 12-month inflation to the official target of 4.5 percent by 2016 from 8.13 percent in March.

“We believe the board will not disappoint the market with a smaller hike, particularly following its hawkish communications,” Joao Pedro Ribeiro, an analyst with Nomura Securities, said in a note to clients.

Ribeiro, who forecasts a 50-basis-point increase, said high inflation expectations outweigh the positive effects of a stronger local currency.

Central bank president Alexandre Tombini and other directors repeated recently they will remain vigilant. They said past monetary tightening had not been enough to bring inflation back to the middle of the target range of 2.5 percent to 6.5 percent.

The central bank has not signaled when it will stop raising rates, but most analysts believe Wednesday’s increase could be the last this year.

A near 9 percent appreciation of the real in April and the diminishing effects of steep increases in regulated prices are expected to ease inflation. Fears of a deeper economic recession this year are also expected to bring the cycle of increases to an end.

Analysts expect the Selic rate to end the year at 13.25 percent, but believe policymakers will cut it to 11.50 percent by late 2016, according to a central bank survey of economists released on Monday. (Reporting by Alonso Soto. Editing by Andre Grenon)

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