By Luana Maria Benedito and Gabriel Burin
SAO PAULO/BUENOS AIRES (Reuters) - Economists are unusually split over the size of a likely Brazil interest rate reduction on May 8, a Reuters poll found, amid changing views about the future path of U.S. monetary policy and persistent local inflation worries.
In August 2023, the central bank launched a series of six consecutive 50 basis points rate cuts from a six-year high of 13.75% to 10.75% currently, satisfying market expectations policymakers had telegraphed well in advance.
But Banco Central do Brasil (BCB) recently stopped offering clear forward guidance and adopted a more hawkish tone, leading to unusually divergent views for its near-term strategy, combined with calls for a more orthodox stance ahead.
Of 39 economists surveyed between April 29-May 3, 22 said the bank's rate setting committee, known as Copom, would ease by 25 basis points to 10.50% at its next meeting on May 8, while the other 17 stuck to a 50 basis points move to 10.25%.
"The recent shift in our Fed call to a single cut in December puts additional pressure on the BCB to tread carefully with its easing cycle," BNP Paribas (OTC:BNPQY) analysts wrote in a report, as views on the U.S. Federal Reserve's policy remained in flux.
"In addition to international factors, the BCB's balance of risks also considers local factors, which continue to warrant caution. Inflation expectations remain unanchored," they added, also citing bigger fiscal risks.
Analysts had anticipated almost unanimously all half-percentage point reductions since the start of the easing cycle last year. This changed after BCB chief Roberto Campos Neto opened the door to smaller cuts last month.
In a separate question in the poll, a majority of 27 of 28 respondents viewed a 25 basis points rate reduction in June. Only one saw a 50 basis points cut in next month's policy meeting.
Median estimates for the end of 2024 and 2025 were raised to 9.75% and 9.00% respectively, compared with 9.00% and 8.50% previously, in line with stronger warnings by Campos Neto about fiscal deterioration that have irked the Finance Ministry team.
At the same time, rising volatility in local currency markets is shaping up as yet another potential threat following last month's depreciation of Brazil's real, but risks on this front look contained for now.
"As long as foreign exchange moves do not materialize into faster inflation, there is no reason for BCB to reconsider monetary policy," said Rafael Cardoso, chief economist at Daycoval Asset Management.
(Reporting and polling by Gabriel Burin in Buenos Aires and Luana Benedito in Sao Paulo)