June 26, 2018 / 12:23 PM / 4 months ago

UPDATE 1-Uncertainty kept Brazil central bank from signaling future rate moves

(Recasts throughout to add details from minutes, context)

By Bruno Federowski and Patricia Duarte

BRASILIA/SAO PAULO, June 26 (Reuters) - Increased uncertainty kept Brazil’s central bank from signaling coming interest rate moves, the minutes of its last policy meeting showed on Tuesday, a sign that a truckers’ strike and a global selloff have muddied the waters for monetary policy.

Policymakers last week left the benchmark Selic rate at an all-time low of 6.50 percent, as expected by all but one of 38 economists polled by Reuters.

The bank removed from the statement announcing the decision a sentence that said it would be appropriate to maintain rates at current levels in “next meetings,” preferring to keep all options on the table as it assesses the economic outlook in coming months.

According to the minutes, “considering the high level of uncertainty of the current scenario, the Committee deems it appropriate to refrain from signaling the next steps in the conduct of the monetary policy.”

Truckers protesting high diesel prices blocked major highways in the final weeks of May, causing product shortages that bumped up inflation back to the central bank’s target range while also weighing on economic activity.

Coupled with increased concern over an unpredictable presidential election this year, the strike accentuated global selloff in emerging market assets that drove the Brazilian real to a two-year low. A weak currency drives up import prices, although high unemployment has continued to keep a lid on inflation trends.

The bank has repeatedly stressed that currency moves will only drive monetary policy if they affect wider inflation or expectations for future price hikes. Policymakers said they would closely monitor incoming economic indicators to verify whether that is the case.

Yet the minutes suggested it has become harder to reach clear-cut conclusions over the state of Latin America’s largest economy in the short term.

“Indicators for May – and possibly June – are likely to reflect the effects” of the strike, the minutes said. “Economic developments over July and August should indicate more clearly the pace of recovery, which may be more or less intense.”

A central bank survey of economists indicates that inflation is likely to end 2018 at 4.0 percent, below the midpoint of the official target range of 4.5 percent plus or minus 1.5 percentage point, before rising to 4.1 percent in 2019. (Reporting by Bruno Federowski in Brasília and Patricia Duarte in São Paulo; Writing by Bruno Federowski; Editing by Bill Trott)

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