UPDATE 1-Brazil central bank signals it will hold rates steady

Thu Dec 6, 2012 5:50am EST

SAO PAULO Dec 6 (Reuters) - Brazil's central bank believes keeping interest rates steady is the best monetary policy going forward, minutes of the bank's last rate decision meeting said on Thursday, suggesting policymakers have no plans for more rate cuts anytime soon.

The central bank ended a year-long rate-cutting cycle on Nov. 28, leaving its Selic rate unchanged at a record-low 7.25 percent as it seeks to keep a lid on inflation despite doubts over the pace of recovery in the world's No 6 economy.

The bank repeated the language used in its rate decision statement, saying "the stability of monetary conditions for a sufficiently prolonged period is the most adequate strategy to guarantee the convergence of inflation to the target, even if in a nonlinear way."

The pause after ten straight rate cuts was widely predicted by the market, but slower-than-expected economic growth in the third quarter has raised doubts on whether the bank will be tempted to cut rates again next year.

Yields on interest rate future contracts in Brazil have dropped sharply since the government released much weaker-than-expected gross domestic product figures last week, suggesting that traders believe the bank could cut rates again.

The bank's Monetary Policy Committee, known as Copom, also said it expects economic activity to be pick up next year, when the lagging effects of the interest rate cuts will boost domestic demand.

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