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Analysts: Brazil's central bank to slow monetary easing due to political crisis

The resurgence of a political crisis in Brazil is likely to slow down Banco Central do Brasil's pace of rate cuts, analysts told Valor Econômico, in reference to recent bribery accusations and overall turmoil surrounding President Michel Temer.

Analysts reportedly predict the central bank will not cease its monetary easing policy but that it will slow the process of cutting the benchmark Selic rate.

The bank's monetary policy committee, known as Copom, last lowered the rate in April by 100 basis points to 11.25% and has lowered the rate by a total of 300 basis points since October 2016.

Out of 41 analysts who spoke to Valor Econômico, 35 predict the central bank will cut the rate by 100 basis points in the next meeting, down to a rate of 10.25%.

Itaú Unibanco Holding SA also predicts a 100 basis point cut according to a report in Diário Comércio Indústria & Serviços. The Brazilian banking group said Copom's decision was now subject to new political developments affecting asset prices and the prospective path of inflation.

"In particular, if by the date of the meeting we see new events that worsen the prospect of approving reforms and raise risk on Brazilian assets, a moderate reduction in the rate of interest cuts can not be ruled out," Mario Mesquita, Itaú's chief economist, told the publication.

The central bank is expected to modify the benchmark rate in early June.