UPDATE 4-Brazil holds interest rates, hike seen in April

* Brazil’s central bank holds benchmark rate at 8.75 pct

* Bank pledges to carefully monitor macroeconomic outlook

* Split vote opens door for likely rate hike in April

* Economists had been split over when hikes could start
(Adds comments, context on politics)

By Isabel Versiani and Raymond Colitt

BRASILIA, March 17 (BestGrowthStock) – Brazil’s central bank held
its benchmark interest rate on Wednesday in a split vote that
opened the door for a hike in April after a rapid recovery in
Latin America’s largest economy stoked inflation.

The bank’s monetary policy committee, known as the Copom,
voted five to three to hold the so-called Selic rate
(BRCBMP=ECI: ) at a record low of 8.75 percent for a fifth
meeting running. The three dissenters voted to hike the Selic
by 50 basis points to 9.25 percent.

“The committee will carefully monitor the development of
the macroeconomic outlook until its next meeting, to then
define the next steps of its monetary policy strategy,” the
bank said in a statement.

The split vote increased the likelihood that the Copom will
raise the Selic at its next meeting on April 27-28 to keep a
lid on inflation, analysts said.

“The split vote is the final signal that the central bank
normally gives before changing monetary policy,” said Silvio
Campos Neto, chief economist at Banco Schahin in Sao Paulo.

Yet politics could complicate upcoming rate decisions.
Brazilians will elect a president and a slew of other officials
in October, and there has been speculation of government
pressure on the bank to keep rates low to curry voter favor.

“Economic policy is clearly expansive, in an election year,
so I think any rate decision in the coming months is going to
be complicated,” said Winston Fritsch, managing partner at
Orienta Investimentos, a consulting firm in Rio de Janeiro.

“The political calendar doesn’t help these decisions at
all, but I still think the rate is going to rise,” added
Fritsch, a former secretary of economic policy at Brazil’s
finance ministry.

Data on Wednesday suggested that Brazil’s economy was
rebounding strongly from the global financial crisis. The
209,425 payroll positions created in February hit a record for
that month, adding to gains in January. For story see
[ID:nN17162952].

Yet there had been little consensus among economists and
analysts over whether the bank needed to raise the benchmark
Selic rate from its record-low 8.75 percent now or whether
policymakers could hold off until April. The last hike to the
Selic came in September 2008.

In a Reuters poll last week, 13 of 31 analysts saw the rate
increase coming in March and another 13 in April, with the
remainder scattered among other dates. [ID:nSPG002795]

Central banks across Latin America loosened policy last
year to boost growth. In recent weeks, Mexico, Colombia and
Chile have all held benchmark interest rates steady.
[ID:nN19116612] [ID:nN26156370] and [ID:nN11195107]

The rate decision in Brazil could be the last under
Henrique Meirelles, the longest-serving central bank president
in Brazil’s history. Meirelles, who has headed the bank since
early 2003, may step down by the end of the month to run for
political office in the October elections.

The central bank hacked 500 basis points off the Selic last
year in an effort to jump-start a then-flagging economy.
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For a graphic on Brazilian interest rates under Meirelles
please see:

http://link.reuters.com/zac24j
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

INFLATION EXPECTATIONS RISING

Last year’s rate cuts were widely credited with helping
Brazil’s economy return to growth after a six-month recession,
bouncing back before many more developed countries.

But that recovery has also meant stepped-up inflationary
pressures. In a weekly survey by the central bank, local
economists now see Brazil’s annual inflation rate quickening to
5.03 percent this year. [ID:nN15187832]

Since the central bank uses an inflation target — set at
4.5 percent plus or minus 2 percentage points this year — as a
guide in setting rates, faster inflation means greater chances
of a rate hike.

Last year inflation came in at 4.31 percent, well within
2009’s target, set over the same range.

Chile’s central bank decides on rates on Thursday, its
first such meeting since a massive 8.8-magnitude earthquake on
Feb. 27. The base rate in Chile is currently a record low 0.5
percent. [ID:nN14224915]

The bank has vowed to support Chile’s recovery but its
governor said cutting rates further was not under
consideration. [ID:nN07140562]

Mexico’s central bank will decide whether to change its
rate from the current 4.5 percent on Friday. [ID:nGLOBAL]

Mexican inflation reached its fastest pace in 5 months
during February. Most economists expect the country’s central
bank to wait until at least mid year to raise interest rates
due to a still weak economy. [ID:nN09228089]

Stock Today

(Additional reporting by Daniela Machado and Guillermo
Parra-Bernal in Sao Paulo; Writing by Luciana Lopez; Editing by
Todd Benson and Andrew Hay, Gary Hill)

UPDATE 4-Brazil holds interest rates, hike seen in April