Brazil's central bank could abandon rate hike plans as outlook worsens

Brazil's central bank chief Alexandre Tombini said in his comments that policymakers will take into consideration the International Monetary Fund's "significant" cuts to Brazil's growth outlook for this year and 2017. This is likely a signal that the BCB could abandon plans to aggressively raise interest rates to battle inflation, which recently hit a 12-year high. 

Tombini's comments considerably lowered market expectations for the bank to hike its benchmark Selic interest rate by 50 basis points to 14.75 percent, according to a Reuters survey of economists. Twenty-four out of 43 economists continue to predict a 50-point hike, while the rest expect either a smaller increase or no increase at all. In a Reuters poll last week, 48 out of 59 economists expected a 50-point hike.

Despite 700 basis points hike since 2013, the BCB has had scant success in stemming price rises. Annual inflation surged to 10.67 percent in December, more than double the official target of 4.5 percent, and inflation expectations for this year and next continue to rise as Brazil's currency, the real, weakens and major cities raise bus fares.