Brazil's central bank will likely cut interest rates next week to near an all-time low, slashing borrowing costs for the sixth meeting in a row as it seeks to bolster a sluggish economic recovery, a Reuters poll found on Thursday.
Forty-five of 47 economists polled by Reuters predicted the central bank will lower its benchmark Selic rate by 75 basis points to 9 percent when its monetary policy meeting adjourns after markets close on Wednesday, April 18. The remaining two forecast a smaller cut of 50 basis points, to 9.25 percent.
The poll also showed that economists are betting that Brazil's easing cycle is coming to an end. Forty-three of 45 economists who gave year-end forecasts expect the Selic to hold steady after next week's meeting end 2012 at 9 percent, just above a historic low of 8.75 percent. Instead of opting for more rate cuts going forward, economists expect the central bank to adopt a wait-and-see approach to gauge the impact of the easing cycle on Brazil's economy, which grew just 2.7 percent last year after expanding 7.5 percent in 2010.
"Since we have a 6-month lag for monetary policy measures to take effect, the whole outlook for this year has already been settled," Alex Agostini, analyst at Austin Ratings in São Paulo, told Reuters. "If there's any need to raise or cut rates again, this will be in the second half of this year - but focusing on 2013."
Brazil was the first major emerging economy to start cutting interest rates last August as the deteriorating euro zone debt crisis raised fears of a global credit crunch. It has brought rates down to 9.75 percent from 12.5 percent since then, helping to keep consumer demand robust even as the economy slowed.
Central Bank President Alexandre Tombini has signalled that the Selic is unlikely to fall much further, saying in minutes from the last policy meeting that rates would "very likely" fall to "slightly above" record lows and stay there.
The bank is trying to do its part to ensure that Latin America's largest economy grows faster this year without rekindling inflation, which ended 2011 at a seven-year high of 6.5 percent - at the top of the bank's target range.
Since then, annual inflation has slowed to 5.2 percent at the end of March. Analysts expect inflation to end the year at 5.1 percent, according to the latest central bank survey of local financial institutions. For 2013, however, a pick up to 5.5 percent is expected as the economy rebounds.
The administration of President Dilma Rousseff has taken a flurry of measures in recent months to ensure that the economy grows more than 4 percent this year. These include a mix of tax breaks and subsidised loans for targeted industries, higher import duties, and steps to halt a currency rally that was hurting the competitiveness of Brazilian manufacturers by driving up costs.
A lower-than-expected inflation rate in March had increased bets in interest rate futures markets that the central bank's easing cycle could extend for at least another month.
But Tombini said on Wednesday in an interview with local television channel GloboNews that the guidance in the latest minutes "remained valid." Only two analysts in the Reuters survey expect the easing cycle to go beyond next week's meeting. They expect the Selic to end the year at 8.75 percent.
Some economists worry that the inflation respite could be temporary, especially if volatile food prices rise more than expected. As such, they argue that the central bank would be wise to pause after one more rate cut next week.
Still, others see reasons for the central bank to opt for smaller rate cuts in coming months to gradually phase out the easing cycle.