Brazil set to hike rates for second straight month
Brazil's central bank is expected to raise its benchmark Selic interest rate for the second consecutive month on Wednesday to cool inflation expectations amid heated growth and high world oil prices.
The bank will hike the Selic 0.25 percentage points to 16.5 percent when its monetary policy committee, or Copom, ends its two-day monthly meeting after 6 p.m. (5 p.m. EDT/2100 GMT), 18 of 20 economists polled by Reuters said last week.
The remaining two economists expected a more aggressive, half-percentage-point hike to 16.75 percent."It's more of a signal than a real tightening of monetary policy," said chief economist Mauro Schneider at ING Bank in Sao Paulo, who expects a 0.25 percentage-point hike.
The Central Bank raised the Selic for the first time in 19 months in September amid signs South America's largest economy was growing faster than it could gain investment to supply accelerating demand.
The move blunted a spike in consumer prices but financial markets still see 2004 and 2005 inflation above bank targets, with the state oil company expected to raise domestic fuel prices to match the jump in world oil prices.
"Higher oil prices have not been translated into higher domestic prices, and higher transport costs and that leaves potential inflation for next year," Schneider said.
CREDIBILITY GAP?
The economy contracted 0.2 percent last year, its worst performance in a decade, but there are signs that surging domestic demand and strong exports will drive 2004 economic growth to at least 4.5 percent.
Brazilian President Luiz Inacio Lula da Silva told businessman on Monday the country had to win "credibility" with investors before it could cut rates again, after slashing 10.5 percentage points off the Selic between June 2003 and April 2004 to 16 percent.
(From Reuters, October 20, 2004)
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