Brazil's central bank keeps options open as Lula 'senses' rate cut?ahead

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Brazil's central bank will stick to a data-dependent approach ahead of meeting

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Lula rules out pressure on central bank, but expects rate cut soon

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Central bank chief warns against assuming any single indicator will dictate decisions

By Marcela Ayres and Lisandra Paraguassu

BRASILIA, Dec 18 (Reuters) - Brazil's central bank chief Gabriel Galipolo said on Thursday he and his fellow policymakers will stick to a data-dependent approach and offered no guidance on the next interest rate move, while President Luiz Inacio Lula da Silva said he "could smell" cuts coming soon. Galipolo kept all policy options open ahead of a monetary policy meeting next month. The central bank has kept its key rate at 15%, the highest level in nearly two decades, in an effort to ensure inflation falls to "around" the 3% target. "This means I'm not giving any kind of direction on what to do, nor am I closing any doors," Galipolo said at a press conference, stressing that the central bank prefers to wait and gather more information rather than give guidance on future steps.

He emphasized it would be wrong to assume that any single factor would determine interest rate decisions, a point he said also applies to inflation projections.

LULA RULES OUT PRESSURING CENTRAL BANK

Speaking at a separate press conference, Lula ruled out pressuring the central bank to lower rates and voiced "full confidence" in Galipolo, but added that he expects an easing cycle to begin soon.

"Just like we can smell rain coming, I'm sensing that very soon interest rates will start to come down," Lula said.

The leftist leader has toned down criticism of the central bank for what he sees as excessively high borrowing costs since Galipolo, his nominee, replaced Roberto Campos Neto, an appointee of former President Jair Bolsonaro, in January.

"The central bank has autonomy, I would never pressure Galipolo to take whatever action he needs to take," Lula said. "It's up to him to make the decision. I hope he's breathing the same air I'm breathing right now."

NO DECISION YET FOR JANUARY MEETING Most economists in a weekly central bank poll expect the easing to start in March, though some are still betting on a cut in January. Galipolo said the central bank deliberately chose language that gives no indication of its future steps because "we haven't decided yet."

Earlier on Thursday, the central bank projected inflation would be 3.2% in the third quarter of 2027, which could be close enough to the target for policymakers to be comfortable starting the easing cycle in January. But Galipolo declined to say whether that figure should be seen as "around" the target.

He said that as policymakers moved away from creating expectations that specific wording could be interpreted as triggers for policy action, market participants have shifted their focus to other elements, including inflation projections.

The central bank's economic policy director, Diogo Guillen, cautioned against a "mechanistic view" of inflation projections and added: "We will consume the data, which is more worthwhile than trying to anticipate or signal anything." (Reporting by Marcela Ayres and Lisandra Paraguassu; Additional reporting by Gabriel Araujo; Editing by Nick Zieminski and Paul Simao)