Brazil central bank holds interest rates, signals easing in March

By Marcela Ayres

SAO PAULO, Jan 28 (Reuters) - Brazil's central bank signaled on Wednesday it would begin cutting interest rates at its next meeting in March, while stressing a "cautious" approach keeping policy contractionary in order to bring inflation back to target.

Until then, the bank's rate-setting committee, known as Copom, voted unanimously to leave the benchmark Selic rate at 15%, its highest since July 2006, in line with expectations from 32 of 35 economists polled by Reuters.

The forward guidance in the bank's policy statement confirmed a market consensus that rate cuts will begin in March, although policymakers stressed "serenity regarding the pace and the magnitude of the easing cycle."

Economists have been split between forecasts for an initial rate cut of 25 or 50 basis points at the next meeting.

Wednesday's decision - announced on the same day the U.S. Federal Reserve also kept rates unchanged - follows a year in which Brazil brought inflation under 4.50%, the top of the tolerance band for its 3% target, helped by a stronger currency BRBY and lower inflation expectations.

Still, central bank governor Gabriel Galipolo stressed in December that policymakers remained strictly data-dependent for their next monetary policy moves, with all options on the table.

That prompted most analysts to bet that the long-awaited easing cycle would begin in March rather than January, amid gathering signs that Latin America's largest economy is cooling.

The central bank maintained on Wednesday its annual inflation forecast for the relevant monetary-policy horizon, now comprising the third quarter of 2027, at 3.2%, in line with its December projection.