Brazil central bank to hike rates by 25 basis points on Sept 18: Reuters poll

By Gabriel Burin

BUENOS AIRES (Reuters) - Brazil's central bank will raise its benchmark rate by 25 points next Wednesday at what will likely be the start of a short tightening campaign to quash persistent inflationary trends, moving the opposite way to its peers, a Reuters poll found.

The move would unwind a 25 basis-point cut implemented in May, the last in a series of reductions that brought the Selic rate to 10.50% from a cycle-high of 13.75%. In June and July, the rate was kept unchanged at 10.50%.

Members of the bank's monetary policy committee, known as Copom, will probably reinforce their concern about inflation staying above target amid worsening expectations for the direction of consumer prices.

The forecast hike by Banco Central do Brasil (BCB) would come on the same day that the U.S. Federal Reserve is expected to launch a series of rate cuts with a first reduction of 25 basis points.

That would take the BCB's Selic up 25 basis points to 10.75% on Sept. 18, according to 36 of 40 economists polled Sept. 9-12. Three saw no change, and one saw a bigger 50 basis-point hike. 

"Given a highly uncertain local scenario, even taking into account an improvement of the external environment, there is still a greater probability of Copom starting a tightening cycle," Guide Investimentos economists wrote in a report.

"The market impact of the central bank's most recent communications leads us to believe the most efficient way to combat high inflation expectations is to act beforehand so it can end early" any tightening drive.

Yield curve prices have indicated strong chances of potential hikes since BCB chief Roberto Campos Neto mentioned a possible gradual adjustment last month. Even President Luiz Inacio Lula da Silva, usually opposed to rate hikes, signalled he may support such an approach at some future point.

Inflation deviated further from the official target recently driven by rising prices in services related to a firm job market. Despite some relief last month, the trajectory remains troubling, with energy costs growing as hydroelectric output falls due to dry weather conditions.

Twenty-seven of 30 respondents who answered an extra question on what the central bank's next move would be after this month's decision forecast another hike at November's meeting.

The three who saw rates staying unchanged on Sept. 18 expected a later cut.

In response to a question on the size of move they expected after next week, the calls of 25 respondents expecting both a 25 basis-point increase on Sept. 18 and a hike two months later were narrowly split, with 13 forecasting a 50 basis-point move and 12 an extra quarter percentage-point.

The central bank will continue adjusting the Selic to a cycle-high of 11.50% in the first quarter of 2025, followed by the start of an easing drive, the survey suggested.

(Other stories from the Reuters global economic poll)

(Reporting and polling by Gabriel Burin in Buenos Aires; Editing by Hugh Lawson)