March 6, 2018 / 5:36 PM / 9 months ago

Brazil inflation likely slowed in February, may bolster rate cut bets

BRASILIA (Reuters) - Brazil’s inflation rate likely ticked down in February as a slower-than-expected economic recovery kept a lid on prices, bolstering bets on an interest rate cut this month.

FILE PHOTO - Consumers shop for food at a market in Sao Paulo, Brazil January 11, 2017. REUTERS/Paulo Whitaker/File Photo

Consumer prices tracked by the benchmark IPCA index probably rose 2.85 percent in the twelve months through February, according to the median of 22 estimates in a Reuters poll of economists. BRCPIY=ECI

That is a tick below the 2.86 percent rate seen both in mid-February and at the end of January, painting a picture of sluggish inflation despite record-low interest rates.

All but one forecaster saw the February rate, scheduled to be released Friday at 9:00 a.m. local time (1200 GMT), below the official target range of 4.5 percent plus or minus 1.5 percentage points.

Thomson Reuters’ SmartEstimate, which weighs contributions according to past performance, pointed to an even lower 2.84 percent reading, suggesting an even wider margin for disappointment.

“This scenario implies a tough decision for the central bank in its coming meeting on March 21: keeping the already low policy rate stable at 6.75 percent or, alternatively, cutting the Selic by 25 basis points to 6.50 percent,” UBS economists wrote in a report.

Following weaker-than-expected fourth-quarter gross domestic product growth, UBS now expects the central bank to pursue an additional rate cut this month, even after the bank strongly hinted at the end of monetary policy easing at its last meeting.

Yields on interest rate futures <0#2DIJ:> suggested most traders agree with that outlook, which would cap the deepest rate-cutting cycle in a decade.

Those expectations also echo comments by central bank chief Ilan Goldfajn, who acknowledged that a recent string of weak inflation reports caught the bank by surprise.

Consumer prices likely rose 0.32 percent from January, according to the median of 21 estimates. BRCPI=ECI

Favorable rains have boosted hydropower generation, paving the way for lower power tariffs and partially offsetting an increase in food prices following a months-long decline.

More widely, though, double-digit unemployment rates and widespread idle capacity have curbed price pressures. So-called core inflation, which strips the index of volatile price categories, has hovered between 3 percent and 4 percent, below the target’s midpoint.

Editing by Bernadette Baum

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