September 19, 2018 / 7:02 AM / in a month

Brazil set to hold rates, may hint at upcoming hike

BRASILIA, Sept 19 (Reuters) - The Brazilian central bank is likely to keep interest rates at an all-time low on Wednesday, but may indicate that it will hike them soon as unpredictable presidential elections hammer the nation’s currency to record lows.

The bank’s monetary policy committee, known as Copom, is widely expected to maintain the benchmark Selic rate at 6.50 percent at the end of a two-day meeting, according to a Reuters poll of economist.

The decision is expected to be announced at 6 p.m. (2100 GMT).

Concerns that the winner of the October vote could fail to cut government spending and curtail ballooning government debt have magnified the effect of an emerging markets selloff on the Brazilian real, threatening to lift import prices and wider inflation.

“We do not expect the election results to fully dissipate risk premia in asset markets, as uncertainty over reform prospects are likely to last into 2019,” economists at UBS wrote in a report.

Policymakers have repeatedly stressed that currency moves will only drive monetary policy if they affect wider prices or expectations.

Most economists polled by Reuters expect the bank to wait until at least 2019 before raising rates.

Official inflation has been hovering at around 4.3 percent, below the 4.5 percent midpoint of this year’s target range but above the 4.25 percent 2019 target midpoint. Double-digit unemployment and widespread idle capacity amid an underwhelming economic recovery, however, have left underlying inflation subdued. (Reporting by Bruno Federowski Editing by Alistair Bell)

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