BRASILIA, Oct 19 (Reuters) - Brazil’s central bank is poised to cut some of the world’s highest interest rates for the first time in four years on Wednesday, in an attempt to help Latin America’s No.1 economy emerge from its deepest recession in decades.
An overwhelming majority of analysts polled by Reuters last week expect the central bank to reduce its benchmark Selic rate from a 10-year high of 14.25 percent, but they are divided over the size of the cut.
Economists are evenly split on whether the bank’s monetary policy committee, known as Copom, will trim the Selic by 25 or 50 basis points after keeping it unchanged for over a year.
“The Copom has been carefully paving the way for a rate cut,” economists with lender Itau Unibanco said in a research note, adding that they believed the bank would opt for a 0.25 percentage point reduction.
“In the statement, we expect the Copom to signal that its next steps will be data dependent.”
The yields of interest rate futures suggest a majority of traders are also betting on a reduction of 25 basis points.
A lower Selic would mark the start of a monetary easing cycle under the command of the bank’s new governor Ilan Goldfajn amid growing market optimism that the economy could have already left behind the worst of a two-year recession.
Inflation has retreated in recent months and the initial approval of a key austerity proposal in Congress has given Goldfajn enough arguments to trim one of the highest interest rates among G20 nations.
A rate cut would also give a boost to President Michel Temer’s efforts to regain market confidence in an economy battered by the political upheaval that led to the ouster of his predecessor Dilma Rousseff earlier this year.
The recovery, however, remains tentative with high unemployment and dwindling industrial output. Inflation at 8.48 percent remains well above the 4.5 percent center of the official target.
That stubbornly high rate should keep the central bank cautious, say economists expecting a moderate 25-basis-points cut on Wednesday.
For the remaining half of analysts, the bank has enough room to cut rates deeper with inflation expectations falling and political momentum building for Congress to pass tough economic reforms. (Reporting by Alonso Soto; Editing by Alistair Bell)