PREVIEW-Brazil’s Selic rate seen at 10.75 pct next week

WHAT: Brazil’s benchmark Selic interest rate decision

WHEN: Wednesday, Sept. 1, after 6 p.m. local time (2100

REUTERS FORECAST: In a Reuters survey, 16 of 20 economists
saw the central bank holding its benchmark lending rate steady
at 10.75 percent at next week’s meeting. That would end a
tightening cycle of 200 basis points begun in April.

Three analysts see the rate at 11 percent, with one
forecasting a Selic rate of 11.25 percent.

Forecasts for rates in 2011 ranged from 10 percent to 13
percent, underscoring the uncertain outlook for Brazilian
monetary policy next year, when a new president will take

FACTORS TO WATCH: Recent data have underscored the
fragility in the global recovery and major economies could stay
sluggish next year, keeping Brazil’s expansion in check.

Growth in Brazil’s economy has slowed from its torrid
first-quarter pace and analysts now peg expansion at around 7
percent this year.

“There’s an environment of uncertainty next year with a
downside risk for economic activity,” said Silvio Campos Neto,
chief economist for Banco Schahin in Sao Paulo. “Here in
Brazil, inflation is slowing and we’re growing at a good pace,
moving to a sustainable level.”

Consumer prices in Brazil have dropped in recent readings.
The 12-month inflation rate dipped in August below the midpoint
of the central bank’s target for this year of 4.5 percent, plus
or minus 2 percentage points, the first fall since January.

MARKET IMPACT: Investors have recently pared their bets for
a tightening cycle in Brazil, with yields on interest rate
futures contracts falling. If the bank holds rates and issues a
dovish statement, investors could reduce those bets even more.

In contrast, a surprise rate hike could see yields pushed
back up on the possibility of higher borrowing costs through
next year.

Brazil’s interest rates are already among the world’s
highest and many economists have said the Selic need not reach
its pre-crisis level of 13.75 percent as the country’s economy
(Reporting by Vanessa Stelzer; Writing by Luciana Lopez;
Editing by Gary Crosse)

PREVIEW-Brazil’s Selic rate seen at 10.75 pct next week