Brazil to raise rates for second straight meeting next week - Reuters Poll

Reuters

By Silvio Cascione

BRASILIA (Reuters) - Brazil's central bank is widely expected to raise interest rates for a second straight meeting next week, tightening its grip on inflation but weighing further on sluggish economic growth, a Reuters poll showed on Friday.

All the 49 economists surveyed agreed the central bank will raise borrowing costs on Dec. 3 from the current 11.25 percent .

Most, or 29 economists, expect the bank to raise rates by 25 basis points, to 11.50 percent. The remaining 20 think policymakers will opt for a bolder 50-point hike as part of recent government efforts to boost market confidence in President Dilma Rousseff's economic policy.

Brazil's central bank faces a delicate balancing act between stubbornly high inflation and stagnant economic growth. The bank is at risk of seeing inflation breach its year-end target for the first time in a decade, but low growth has started to kill jobs in factories and construction sites.

What could tip the balance in favour of a smaller rate hike is the expectation of a slowdown in government spending next year. Potential budget cuts in the works by the incoming finance minister, Joaquim Levy, would reduce pressure on inflation, according to economists.

"The fiscal adjustment will be more pronounced with this economic team, which allows the (central bank rate-setting committee) Copom to move a little more gradually," said Alessandra Ribeiro, an economist with consultancy firm Tendencias, who expects a 25-point increase.

Brazil's economy grew just 0.1 percent in the third quarter, data showed on Friday.

The prevailing view among economists are at odds with market prices. Yields on interest rate futures <0#DIJ:> have traded at levels consistent with a 50-point hike on Dec. 3, according to Reuters calculations.

Earlier this month, central bank director Carlos Hamilton Araujo said inflation is "elevated" and could prompt policymakers to "recalibrate" monetary policy. [ID:nL2N0T81S5] Central bank President Alexander Tombini on Thursday said policymakers "will not be complacent" with inflation.

"It would be more rational to make a faster adjustment," said Rafael Santos, an economist with Mirae Asset Securities. "A quick adjustment would be very important for market expectations and would help make inflation converge (to the target)."

The central bank is expected to raise rates to 12 percent by the end of the first quarter of 2015, the poll showed.

(Editing by Jeffrey Benkoe)