Brazil's services activity edges up in March despite tight monetary policy

SAO PAULO, May 14 (Reuters) - Services activity in Brazil expanded less than expected in March, data from statistics agency IBGE showed on Wednesday, but it marked the second positive reading in a row despite tight monetary policy.

Activity in the sector, which is the main driver of Latin America's largest economy, rose 0.3% in March from the previous month, IBGE said, just below the 0.4% rise expected by economists polled by Reuters. The sector grew 0.9% in February after a run of flat or negative readings since November.

Recent negative readings cannot be seen as an inflection point or a reversal in the indicator's trajectory, Rodrigo Lobo, IBGE's research manager, said in a statement, as the central bank assesses signs of cooling activity amid an aggressive tightening cycle.

"On the contrary, there is a sustaining of the service sector at a high level, very close to its record level," Lobo said, referring to the reading for last October.

On an annual basis, services output grew 1.9%, the 12th consecutive positive reading. Economists in a Reuters poll had forecast a median rise of 2.1%.

Analysts at XP say that the March figures "corroborate our baseline scenario of a gradual weakening of domestic activity."

The latest readings suggest that the process of economic cooling will develop gradually in 2025, analysts at Genial Investimentos said in a note.

Brazil's central bank last week hiked its benchmark interest rate for a sixth straight time, pushing it to 14.75%, the highest level in almost 20 years. The central bank cited stubbornly high domestic inflation as justification for the move.