WRAPUP 4-Brazil holds Selic rate steady despite inflation

* Central bank holds Selic rate at 10.75 pct as expected

* Above forecast inflation to mid-Oct could add pressure

* Rate verdict comes ahead of Oct. 31 election runoff
(Adds rate decision in paragraphs 1-2, central bank comments
in paragraph 3, previous statements in paragraph 7)

By Ana Nicolaci da Costa

BRASILIA, Oct 20 (BestGrowthStock) – Brazil’s central bank kept
benchmark borrowing costs steady on Wednesday for a second
consecutive meeting even as inflation in Latin America’s
largest economy gains steam.

Policymakers left the Selic rate (BRCBMP=ECI: ) unchanged at
10.75 percent as expected by all analysts in a Reuters survey.
In September, the bank put an end to a 200-basis-point cycle of
monetary tightening that began in April.

“After evaluating the macroeconomic scenario and the
prospects for inflation, the Copom decided unanimously to hold
the Selic rate at 10.75 percent, with no bias,” the central
bank said in a statement explaining the decision.

Brazil, which is battling a surge in its currency against
the dollar, held interest rates steady even as its economy is
set to expand at the fastest pace in more than two decades.
Other big emerging markets such as China and India have begun
raising interest rates to curb growth and inflation.

All 20 analysts polled by Reuters expect the central bank
to keep the Selic rate on hold through the end of the year.

The central bank has kept the door open for an eventual
rate hike if a rise in food prices spreads to the rest of the
economy. [ID:nN30242360]

The bank’s brief statement on Wednesday did not mention, as
in comments in the previous policy meeting and in the bank’s
quarterly inflation report on Sept. 30, that it sees reduced
risks to the inflation outlook and that price pressures were
temporary.

The decision also came after data on Wednesday that showed
inflation for the month through mid-October rose a
larger-than-expected 0.62 percent. That could add pressure on
policymakers to raise rates in the future. [ID:nN20187750]

“The central bank has given very dovish signs recently so I
do not believe that this number today will alone make any
difference for today’s rate decision,” said Marcelo Carvalho,
chief Latin American economist at BNP Paribas in Sao Paulo.

But he said the central bank should do something to tackle
“significant” price pressures.

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Graphic on the Selic rate: http://link.reuters.com/pup68k

Factbox on political risks in Brazil: [ID:nRISKBR]

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TIMING

The decision to leave rates unchanged is good news for
Dilma Rousseff, the ruling party candidate and frontrunner in
the Oct. 31 presidential runoff vote.

Rousseff’s lead over opposition candidate Jose Serra has
narrowed sharply since she failed to snatch a victory in the
first round of Oct. 3 voting, and she has struggled to revive
her campaign since.

Some investors fear the central bank may be waiting too
long to raise interest rates amid signs that price pressures
and inflation expectations are increasing.

Brazil has outshone most other major economies this year,
as strong job creation and ample consumer lending fueled
domestic demand. Economic activity was unchanged in August from
the previous month, but was up 6.43 percent compared to August
2009, according to central bank data. [ID:nN20193696].

Analysts expect the economy will grow 7.55 percent in
2010.

The IPCA consumer price index rose 5.03 percent in the 12
months to mid-October, up sharply from the 4.57 percent rate in
the year through mid-September and above the midpoint of the
government’s year-end target of 4.5 percent, plus or minus 2
percentage points.

The central bank uses the index as a guide when setting
interest rates.

Analysts in a weekly central bank survey on Monday raised
estimates for 2010 inflation for the fifth week running,
betting the IPCA would close the year at 5.2 percent.

(Additional reporting by Elzio Barreto in Sao Paulo,
Editing by Stuart Grudgings and Padraic Cassidy)

WRAPUP 4-Brazil holds Selic rate steady despite inflation