Brazil central bank pauses tightening after seven straight hikes

By Marcela Ayres

BRASILIA (Reuters) -Brazil’s central bank held its benchmark interest rate steady on Wednesday, pausing an aggressive tightening cycle after seven consecutive hikes as widely expected after a signal last month that it would hold rates for a “very prolonged” period.

The bank’s monetary policy committee, known as Copom, kept its benchmark Selic rate at 15.00%, the highest since July 2006. All 35 economists surveyed by Reuters between July 21-25 had forecast the decision.

With stable rates largely priced in, market attention turned to the central bank’s statement for any hints on when rate cuts could begin in Latin America’s largest economy.

But the central bank remained cautious and sought to steer clear of that debate in its policy statement, released on the same day the U.S. Federal Reserve held rates steady despite political pressure to start cutting borrowing costs.

Copom paused its rate-hiking cycle “to examine its yet-to-be-seen cumulative impacts, and then evaluate whether the current interest rate level, assuming it is stable for a very prolonged period, will be enough to ensure the convergence of inflation to the target,” policymakers wrote in their statement.

Policymakers again warned they would not hesitate to resume hikes if deemed necessary.

Inflation-adjusted borrowing costs in Brazil are in deep in restrictive territory, surpassing even those in Russia and Turkey, which has helped attract capital inflows and strengthen the country’s currency by about 10% this year, easing some pressure on consumer prices.

Even so, Brazil has seen inflation running well above its official 3% target for several months, fueled by an overheated economy, government stimulus measures, and a tight labor market.

Market expectations for inflation also remain unanchored from the target in coming years, despite some recent improvement for this year and next, after recent indicators began to show the impact of steep interest rates on credit and cooling economic activity.

(Reporting by Marcela AyresEditing by Brad Haynes)