Brazil set to hike interest rates, may speed tightening
By Alonso Soto
BRASILIA (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 vowed to adopt more business-friendly policies to turn around an economy that since she took office in 2011 has expanded just 2 percent a year, less than half the average of the past decade.
In a letter to investors released on Wednesday, Rousseff backed her pick for finance minister, Joaquim Levy, who has promised to rein in spending to replenish public coffers depleted after years of high government outlays 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 has weighed on economic growth.
"Monetary policy is also likely to be tightened further as the central bank attempts to re-establish its inflation-fighting credentials and win back the confidence of markets," said Neil Shearing, chief emerging markets economist with Capital Economics.
Yields on interest rate futures <0#DIJ:> show traders are betting on a 50-point hike on Wednesday, according to Reuters data.
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.
Bank officials have hinted they are ready for bolder increases to bring inflation back down to the 4.5 percent centre of the official target in 2016.
Twelve-month inflation is expected to remain unchanged in November at 6.59 percent, above the 6.5 percent target ceiling.
Central bank chief Alexandre Tombini said the bank won't tolerate inflation.
The bank's director Carlos Hamilton Araujo went further, saying that the bank could "recalibrate" rate hikes.
The Brazilian real's weakening against the U.S. dollar, which the bank cited as a main cause for its surprise hike in October, has continued since the bank's last meeting.
(Reporting by Alonso Soto; Editing by Jeb Blount, Andrew Hay and Meredith Mazzilli)
