Brazil January economic activity beats estimates ahead of rate decision

BRASILIA, March 17 (Reuters) - Brazil's economic activity grew more than expected in January, central bank data showed on Monday, ahead of a monetary policy meeting in which the strength of economic activity is expected to be a key factor in determining the bank's next steps.

The IBC-Br index, a leading indicator of gross domestic product (GDP), rose 0.9% in seasonally adjusted terms from December, exceeding all forecasts in a Reuters poll of economists.

The median forecast was for a rise of 0.22%, whereas the highest estimate was for an increase of 0.60%.

On a non-seasonally adjusted basis, the index - which incorporates proxies for output in agriculture, industry and services, as well as tax data on production - grew 3.6% from January 2024 and 3.8% over the past 12 months.

"This IBC-Br data indicates that Brazil's GDP is likely to post strong growth in the first quarter of 2025, driven by a record grain crop, particularly soybeans," said Rafael Perez, an economist at Suno Research.

From the second quarter onward, the impact of restrictive borrowing costs should begin to weigh on credit and economic activity, Perez added.

The central bank began a tightening cycle in September and has raised its benchmark interest rate by a total of 275 basis points to 13.25% to curb inflation, which remains under pressure from a strong economy and a resilient labor market.

Policymakers have penciled in a hike of 100 basis points at their next meeting on Wednesday.

Markets are now focused on signals from the central bank regarding its next moves.

After weaker-than-expected fourth-quarter GDP data released earlier this month, the central bank's economic policy director said it was still too early to establish a clear trend of cooling activity, pointing to "mixed data" this year, with strength in some indicators.