UPDATE 3-Brazil keeps interest rates on hold, but signals hike

miércoles 25 de noviembre de 2015 18:56 GYT

(Adds context and inflation data details)

By Alonso Soto

BRASILIA Nov 25 (Reuters) - Brazil's central bank kept interest rates on hold for the third straight meeting on Wednesday in a split vote that shows policymakers are uneasy with galloping inflation despite a worsening recession and might raise rates early in 2016.

The bank's monetary policy committee, known as Copom, voted 6-2 to maintain its benchmark interest rate at 14.25 percent, its highest in nine years and well above that of other major economies like Mexico and India. Two of the 8-member Copom voted to raise the Selic to 14.75 percent while the rest voted for no change.

The decision to leave rates steady eases pressure on President Dilma Rousseff as she tries to defuse a political crisis that threatens her plans to plug a widening fiscal deficit and regain investors' confidence.

However, the unusual split decision is the strongest indication yet that the central bank could resume tightening if inflationary pressures linger.

In another telling sign, the bank removed from its statement a previous reference to the need to keep rates on hold for some time to bring inflation back to the official 4.5 percent target.

"In our view this laconic statement with a split decision to hold rates steady signals a high probability of a new tightening cycle at the start of next year," said Tatiana Pinheiro, economist with Santander Brasil.

The central bank had until recently signaled that it may hold rates steady for some time in hopes that the country's worst recession in 25 years drags down prices.   Continuación...