Brazil set to hike rates, may speed tightening to up confidence

miércoles 3 de diciembre de 2014 02:00 GYT

By Alonso Soto

BRASILIA Dec 3 (Reuters) - Brazil's central bank is poised to raise interest rates on Wednesday, but analysts are split on whether it will accelerate monetary tightening to help President Dilma Rousseff regain investors' trust.

Twenty-nine of the 49 economists surveyed by Reuters last week expected the central bank to raise its benchmark Selic rate by 25 basis points to 11.50 percent, the highest rate since January 2012. The rest say the central bank will hike rates by a bolder 50 basis points.

Rousseff has signaled she will adopt more business-friendly policies to turn around an economy that has lagged the expectations of investors and the Brazilian voters who re-elected her in October. Her victory margin was the narrowest in decades.

Her pick for finance minister, Joaquim Levy, considered by many to be a fiscal conservative, has promised to rein in spending to replenish public coffers depleted after years of high government spending and dozens of controversial tax breaks.

The belt-tightening coupled with higher interest rates could help bring inflation back to the official target, lifting slumping business and consumer confidence that have weighed on economic growth.

"From a tactical and a macro policy angle, we see clear benefits from a shorter, more front-loaded rate hiking cycle than a more protracted one," Alberto Ramos, chief Latin America economist for Goldman Sachs, said in a note to clients last week.

The first sign of a policy shift came from the bank itself. On Oct. 29 it surprised investors with a 25 basis-point rate hike only days after Rousseff's reelection. A basis point is 1/100th of a percentage point.

Bank officials have hinted they are ready for bolder increases to bring inflation back to the 4.5 percent center of the official target in 2016.   Continuación...