UPDATE 2-Brazil central bank cuts rates by 50 bps, signals more of the same ahead

(Adds details from central bank statement in paragraphs 5 and 11, economist comments in paragraphs 8-9)

By Marcela Ayres

BRASILIA, Jan 31 (Reuters) - Brazil's central bank cut its benchmark interest rate by 50 basis points for the fifth consecutive time on Wednesday, signaling it will stick to its strategy of same-sized cuts ahead amid a volatile external backdrop.

The bank's rate-setting committee, known as Copom, unanimously reduced its Selic benchmark interest rate to 11.25%, as forecast by all 44 economists surveyed by Reuters.

"If the scenario evolves as expected, the Committee members unanimously anticipate further reductions of the same magnitude in the next meetings, and judge that this pace is appropriate to keep the necessary contractionary monetary policy for the disinflationary process," the bank said in its statement.

The bank's decision came shortly after the U.S. Federal Reserve left interest rates unchanged on Wednesday, with Fed Chair Jerome Powell declaring "we still have a way to go" in the battle to tame inflation. The Federal Open Market Committee's statement language and Powell's comments were a blow to investors who were expecting U.S. cuts as early as March.

In its statement, Brazil's central bank noted that the external scenario remains volatile, and dropped a previous reference to a "less adverse" external backdrop, citing ongoing debates about when major economies could begin the easing cycle.

In December, central bank Governor Roberto Campos Neto had made clear that by signaling further 50 basis point rate cuts, policymakers envisaged keeping the strategy for the committee's next two meetings.

By adhering to the same tone in Wednesday's statement, policymakers are now flagging half-percentage cuts through May, sustaining a robust easing cycle initiated in August that brought borrowing costs down from a six-year high of 13.75%.

"Even while keeping the statement virtually unchanged, it provided relevant information, indicating that it will maintain a 50-basis-point interest rate cut until at least May," said Luis Otavio Leal, chief economist at G5 Partners.

He predicts that this easing pace will slow down to 25 basis points starting from June, with the Selic ending the year at 9%.

The 13.75% rate, which plateaued for nearly a year as the central bank fought a tough battle against inflation, drew sharp criticism from leftist President Luiz Inacio Lula da Silva.

Brazilian policymakers reiterated that consumer prices remain on a path of disinflation, with various measures of underlying inflation closer to the official target. They made no changes to inflation projections, which remain at 3.5% for 2024 and 3.2% for 2025, above the 3% target.

Consumer prices in Latin America's largest economy rose 4.47% in the 12 months until mid-January, below market expectations.

The bank's monetary policy has in recent months been conducted against a challenging fiscal backdrop, as well as an unusually tight labor market. (Reporting by Marcela Ayres; Editing by Gabriel Stargardter and Sonali Paul)