Brazil's former cenbank director sees rate hikes at least till March

By Camila Moreira

SAO PAULO, Oct 11 (Reuters) - Brazil's ongoing monetary tightening cycle should last at least until March but there are risks it may have to go further, a former director of the country's central bank told Reuters.

Fernanda Guardado, now serving as head of economic research for Latin America at lender BNP Paribas, said she does not see any exaggeration in the future interest rate hikes currently priced in by markets.

Brazil's central bank raised its benchmark rate in September by 25 basis points to 10.75% amid unanchored inflation expectations and stronger-than-expected economic data.

All eyes are on its rate-setting committee, known as Copom, after monetary policy director Gabriel Galipolo was nominated by President Luiz Inacio Lula da Silva to replace central bank chief Roberto Campos Neto once his term ends in December.

Markets are concerned about Galipolo potentially being lenient on inflation if pressured by Lula, but the soon-to-be central bank head has vowed to be independent as Copom looks set to tighten monetary policy further.

BNP predicts two more 50-basis-point hikes at the last two monetary policy meetings of 2024, followed by two 25-basis-point increases in January and March, which would leave the benchmark Selic rate at 12.25%, Guardado said.

"I think the central bank will need to wait at least until March to start seeing numbers that bring greater comfort for it to end the interest rate cycle," she said.

BNP earlier this week also raised its inflation forecast for Latin America's largest economy to 4.7% this year and 4% in 2025, well above the 3% target pursued by the central bank.

Guardado said she sees Galipolo "very determined" to keep the central bank within its institutional role and delivering on its constitutional requirements, noting he will head a board in which the votes of all its nine members have the same weight.

Asked about Moody's recent decision to upgrade Brazil's rating from Ba2 to Ba1, just one step below investment grade with a "positive" outlook, Guardado said she received it "with great surprise".

"When you look at the figures, there is still a very big challenge for the next two years from a fiscal point of view," she said. (Reporting by Camila Moreira Editing by Gareth Jones)