UPDATE 2-Brazil central bank cuts rates by 50 bps, may change course after May

(Adds comments from economists in paragraphs 5, 8-10)

By Marcela Ayres

BRASILIA, March 20 (Reuters) - Brazil's central bank cut its benchmark interest rate by 50 basis points at a sixth straight policy meeting on Wednesday, while flagging it may change the course of the current easing cycle after its next decision in May.

The bank's rate-setting committee, called Copom, unanimously agreed to lower the Selic benchmark interest rate to 10.75%, as forecast by all 47 economists surveyed by Reuters.

The committee anticipated another rate cut of the same size in May, if the economic outlook develops as expected, but altered language from its last policy meeting about maintaining the pace of cuts at "the next meetings" in the plural.

Copom stressed in the policy statement that there was no substantial change to their baseline scenario, but "heightened uncertainty and the need for more flexibility" led them to narrow their guidance to just the next policy meeting.

"Copom members appear uneasy with the level of underlying inflation measures and the uncertainty of the scenario," said Elisa Machado, chief economist of ARX Investimentos.

Since August, when making its first 50-basis-point rate cut to bring borrowing costs down from a six-year high, the central bank had been reiterating its unanimous anticipation of further reductions of the same magnitude at "the next meetings," signaling a steady pace for at least two more meetings.

But the bank's monetary policy director Gabriel Galipolo acknowledged that "at some point" it would be necessary to remove the use of the plural for the upcoming meetings.

William Jackson, chief emerging markets economist at Capital Economics, stressed in a note to clients that the change to forward guidance does not rule out another 50-basis-point cut in June.

But with the strength of the labor market likely to keep services inflation elevated, the balance will lean toward 25-basis-point cuts by then.

Rafaela Vitoria, chief economist at Inter, said she found Wednesday's policy statement "a bit more hawkish than expected," but she continues to bet on 50-basis-point cuts both in May and June and the benchmark interest rate closing the year at 8.5%.

Inflation expectations showed little change since the last policy decision in January, even with upward revisions to economic activity, fueled by labor market strength and strong performances in the services and retail sectors.

Brazil's rate cut came on the same day the U.S. Federal Reserve held interest rates steady but indicated it still expects to reduce them by three-quarters of a percentage point by the end of 2024.

The start to the Fed's easing cycle will widen the interest rate differential between the world's largest economy and emerging markets, potentially boosting capital flows into countries like Brazil.

Brazil's 12-month inflation reached 4.50% in February. The official inflation target is 3.0% for this year and next.

The central bank included in the policy statement its inflation projections of 3.5% for this year and 3.2% for 2025, unchanged from its January forecasts. (Reporting by Marcela Ayres Editing by Brad Haynes and Josie Kao)