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By Jamie McGeever
BRASILIA, March 20 (Reuters) - Brazil’s central bank kept its benchmark interest rate at a record low 6.50 percent on Wednesday, as expected, while noting that recent economic data had been weaker than expected and inflation risks were no longer skewed to the upside.
The bank’s nine-member monetary policy committee, known as Copom, voted unanimously to keep the benchmark Selic rate unchanged for the eighth straight meeting, as forecast by all 21 economists in a Reuters poll.
In a sign that new central bank chief Roberto Campos Neto will stay the steady course set out by his predecessor, Copom repeated a line from recent policy statements that policy was best determined with “caution, serenity and perseverance.”
But in a shift from its February statement, Copom said www.bcb.gov.br/en/# !/c/news/1871 that recent economic activity had been weaker than expected and the balance of inflation risks were now "symmetric." Six weeks ago the committee said they were "asymmetric" to the upside, although moderating.
“The risks to inflation are more balanced, but I don’t think this means they will cut rates soon. Policymakers are comfortable where they are, perhaps slightly more neutral than before,” said Patricia Krause, economist at Coface in Sao Paulo.
Economic data since Copom last met six weeks ago has, on the whole, been soft. Data showing that growth virtually ground to a halt in the fourth quarter of last year prompted several economists to cut their 2019 forecasts. The latest snapshots of industrial production, employment and service sector activity suggest that weak momentum has spilled over into this year.
But as Copom members again highlighted on Wednesday, the risk of higher inflation stems largely from uncertainty about a proposed pension reform, the government’s signature policy to shore up public accounts and boost investor confidence.
“Frustration of expectations regarding the continuation of reforms ... may affect risk premia and increase the path for inflation over the relevant horizon,” Copom said.
Interest rate traders have been betting for several weeks that Copom’s next move, whenever it comes, will be a rate cut. April 2020 futures contracts show traders are now betting on a 50-50 chance of a rate cut within the next year.
“The current picture is being defined by slowing economic activity and the need for clarity on reforms,” said Jason Vieira, chief economist at Infinity Asset Management. “The inflation risks inherent in delay, dilution or in the worst case, absence of reforms cannot be ruled out.” (Reporting by Jamie McGeever; editing by Brad Haynes, Alistair Bell and Rosalba O’Brien)