September 6, 2016 / 1:11 PM / 2 years ago

UPDATE 2-Brazil central bank signals it is open to interest rate cut

(Adds analyst comment, Temer background)

By Alonso Soto and Silvio Cascione

BRASILIA, Sept 6 (Reuters) - The Brazilian central bank said on Tuesday that future interest rate cuts will not depend on any single factor, signaling that policymakers are ready to ease monetary policy as inflation expectations improve.

In the minutes of its last rate-setting meeting, the bank said all of its members were satisfied with the progress of disinflation, but remained cautious about high inflation expectations for 2017.

Last week, the bank kept its benchmark Selic rate steady at 14.25 percent for the ninth straight time in a bid to lower inflation that is near 9 percent. The central bank then listed conditions for a rate cut, including the persistence of food price shocks, uncertainty around fiscal adjustment measures and a pick-up in disinflation.

By saying that none of those factors by themselves are necessary to cut interest rates, the bank signaled it may well cut rates soon despite inflation concerns, some analysts said.

“The minutes are more dovish than hawkish as it leaves open the door for a rate cut depending on how those factors evolve,” said Flavio Serrano, senior economist with Sao Paulo-based bank Haitong.

The bank also removed previous references to a lack of room to cut rates, as well as a mention to lower private inflation expectations before any changes in policy.

Brazilian interest futures <0#2DIJ:> were mixed as traders bet that an October rate cut remained on the table but could be delayed if progress on fiscal austerity proves too slow.

Some analysts, however, interpreted the minutes as signaling that the bank could wait a bit longer to cut interest rates if some of the conditions are not met.

“It is not because some of these factors are materializing that the bank will cut rates. The bank has to be certain that inflation will converge to 4.5 percent before any cut,” said Alessandra Ribeiro, economist and partner with consultancy Tendencias.

Brazil’s new president, Michel Temer, who was confirmed last week after the impeachment of his predecessor, has vowed tough economic reforms to rebalance the public accounts and help the central bank slash some of the world’s highest interest rates. (Additional reporting by Bruno Federowski; Editing by Jeffrey Benkoe)

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