UPDATE 3-Brazil central bank sees inflation down, signals rate cut

martes 27 de septiembre de 2016 11:38 GYT

(Adds central bank director comments)

By Alonso Soto

BRASILIA, Sept 27 (Reuters) - Brazil's central bank expects annual inflation to ease below the government's 4.5 percent target in 2017 after years of hovering well above that goal, leaving the door open for cutting some of the world's highest interest rates as early as October.

In its quarterly inflation report released on Tuesday, the bank lowered its 2017 inflation forecast to 4.4 percent from 4.7 percent. For 2016, the bank raised its outlook to 7.3 percent from 6.9 percent.

It said it expected annual inflation to drop to 3.8 percent in 2018.

"The report consolidated the idea that the bank will cut rates in October," said Otavio Luis Leal, chief economist with Banco ABC Brasil in Sao Paulo. "Now the question is: by how much."

Leal said inflation data from the bank's new hybrid forecasting models pointed to a rate cut next month.

"The approval of the spending ceiling proposal will be key for the bank to decide on 25 or 50 basis points in October," he added.

In October, a special commission in the Lower House is expected to vote on a proposal to cap public spending. This may show the level of resistance that President Michel Temer, who has introduced legislation to reduce the country's soaring debt burden and regain investors' confidence of investors in the once-booming economy, will face in Congress.   Continuación...