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UPDATE 1-Brazil central bank holds rates steady, cites reform risks

Jamie McGeever

(Adds comments from policymakers, context, quote)

BRASILIA, June 19 (Reuters) - Brazil's central bank held its benchmark interest rate at a record-low 6.50% on Wednesday, as expected, noting that inflation risks had evolved "favorably" amid a stalled economic recovery, but progress on economic reforms remained uncertain.

The bank's nine-member monetary policy committee, known as Copom, voted unanimously to keep the Selic rate unchanged for a 10th straight meeting, as 18 out of 19 economists in a Reuters poll had predicted.

Policymakers said recent economic data indicated that Brazil's economic recovery had been interrupted and would resume "in a gradual fashion," according to a written statement.

The central bank said concerns of excessive slack in the economy had been outweighed by uncertainty about progress on the government's reform agenda, which includes a social security overhaul that is winding slowly through Congress.

"The Copom emphasizes that the evolution of reforms and necessary adjustments in the Brazilian economy is essential for the reduction of its structural interest rate," policymakers wrote. "The Committee judges that concrete progress on this agenda is fundamental for the consolidation of the benign scenario for prospective inflation."

Brazil's economy shrank in the first quarter of the year, the first contraction since 2016 when Brazil was in the last throes of one of the worst recessions in its history. Second-quarter economic indicators published so far suggest that a dip back into recession, albeit a far lighter one, is a distinct possibility.

Zeina Latif, chief economist at XP Investimentos in Sao Paulo, said the decision to hold fire was the correct one, but policymakers could change their stance at the next meeting at the end of July.

"Now is not the moment to cut rates. But if pension reform is approved, Copom could give a stronger signal at next meeting," she said. (Reporting by Jamie McGeever Editing by Brad Haynes, Tom Brown and Leslie Adler)