Brazil poised to keep rates on hold ahead of likely government change

By Alonso Soto

BRASILIA (Reuters) - The Brazilian central bank will likely keep interest rates on hold for the sixth straight time on Wednesday, in what could be the last decision of its current board ahead of a possible change of government in the coming weeks.

All 32 analysts polled by Reuters believe the bank's 8-member board known as Copom will maintain its benchmark Selic rate at 14.25 percent to anchor inflation expectations despite a recent slowdown in price increases.

The Copom, led by Alexandre Tombini since 2011, would be replaced if Vice President Michel Temer takes over the presidency in a bid to regain investor confidence in monetary policy, Reuters reported on Tuesday citing sources familiar with the matter.

President Dilma Rousseff, who is expected to be suspended from office in mid-May for allegedly breaking budget rules, has been criticized for apparently pressuring the central bank to not make further rate hikes. In Brazil, the central bank has administrative autonomy but is not completely independent.

The bank has been under fire for years for being too tolerant of high inflation to safeguard an economy now mired in its worst recession in over a century.

"Even with a change in the make up of Copom and Temer taking the presidency in mid-May we believe that the size of the easing cycle will not be that different from what we expected originally," economists with Banco Fibra wrote in a research note.

The Sao Paulo-based bank expects the central bank to keep rates steady on Wednesday and start cutting them in the second half of the year, as inflation expectations ease due to a deeper-than-expected recession and the appreciation of the Brazilian currency, the real . Banco Fibra expects policymakers to cut rates by 300 basis points between 2016 and 2017.

Brazil's inflation rate slowed sharply in March to below 10 percent a year, the lowest in nine months, but still well above the 4.5 percent center of the official target range.

Tombini and other board members have repeatedly warned that it is too early to think of cutting the Selic, which is the highest benchmark rate among major world economies.

(Reporting by Alonso Soto; editing by Andrew Hay)

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