Brazil central bank set to keep rates at cycle high of 13.75% next week - Reuters poll

© Reuters. FILE PHOTO: People walk in front the Central Bank headquarters building in Brasilia, Brazil March 22, 2022. REUTERS/Adriano Machado

By Gabriel Burin

BUENOS AIRES (Reuters) - Brazil's central bank is set to keep its benchmark rate at a cycle high of 13.75% on Wednesday and is likely to stick to a hawkish stance for next year to temper inflation expectations, a Reuters poll showed.

It would be the first pause in a tightening campaign that has seen the Selic rate increase by a total 1,175 basis points since the start of 2021, when Brazil was already suffering from sharp inflation pains now affecting the world's main economies.

The Bank's Monetary Policy Committee, known as Copom, will leave the Selic at 13.75%, according to a majority of 24 among 32 economists polled Sept. 12-15. A minority of eight saw a 25 basis point rise to 14.0%.

With price rises in Brazil beginning to cool, policymakers feel little inclination to follow the tougher approach of the U.S. Federal Reserve. They are also reluctant to make potentially disrupting moves before October's presidential vote.

But, sounding a vigilant tone, central bank chief Roberto Campos Neto said last week he was not thinking about policy easing either, as his priority was still to bring inflation back to official targets.

"Copom will signal it is going to maintain the Selic unchanged until August, keeping a good spread over international rates and advantageous real rate levels too," said Jason Vieira, chief economist at Infinity Asset Management.

The country's wide rate differentials have favored some capital inflows this year, helping support the local currency and domestic markets ahead of next month's election, in which President Jair Bolsonaro will seek a second term.

Brazilian consumer prices dropped in August for the second consecutive month due to a fall in fuel costs. In the 12 months through August, inflation was 8.73%, below the 10.07% seen in the immediately preceding 12 months.

Still, the pace remains well above the 3.5% official target for 2022. Next year's outlook is in doubt as well, with forecasts pointing to an expected inflation rate of 5.17%, according to a poll run by the central bank, in contrast with the official view of 3.25% for 2023.

Discontent over high inflation has been a key factor behind Bolsonaro's persistently weak ratings in voter preferences. Former President Luiz Inacio Lula da Silva keeps a solid lead in polls.

The proximity of the vote represents a reason for Copom to stand back in the short-term, avoiding any decision that could make waves - particularly following a raft of surprisingly strong data in Latin America's No. 1 economy.

However, the central bank's prudent strategy means the Selic is set to stay in double-digits for more than a year before falling to 9.50% by the second-quarter of 2024, quarterly estimates in the poll showed.

(Reporting and Polling by Gabriel Burin in Buenos Aires; Editing by Jonathan Cable and Andrea Ricci)