Brazil central bank kicks off rate cuts more aggressively than expected
2023.08.02 19:47
© Reuters. A general view of the Central Bank headquarters building in Brasilia, Brazil February 14, 2023. REUTERS/Adriano Machado
By Peter Frontini
SAO PAULO (Reuters) – Brazil’s central bank kicked off its rate-cutting cycle more aggressively than expected on Wednesday, reducing its benchmark interest rate by 50 basis points and signaling more of the same in the months ahead due to an improving inflation outlook.
The bank’s rate-setting committee Copom cut its Selic policy rate by 50 basis points to 13.25%, as just 10 of 46 economists surveyed by Reuters had anticipated. The other 36 respondents expected a more conservative reduction of 25 basis points.
Although Wednesday’s policy decision was closely divided, Copom’s policy statement signaled a shared outlook to maintain the pace of rate cuts in coming months.
“If the scenario evolves as expected, the Committee members unanimously anticipate further reductions of the same magnitude in the next meetings,” policymakers wrote, calling that pace appropriate to keep inflation falling.
“The relatively dovish tone … suggests that policymakers’ inflation concerns are dissipating more quickly than we’d anticipated,” said William Jackson, chief emerging markets economist at Capital Economic, in a note to clients.
“As a result, we now expect interest rate cuts to be more front-loaded and we think the Selic rate will end this year at 11.75%,” he added, down from a previous forecast of 12.50%.
Wednesday’s rate decision reflected a split among board members, with five votes in favor of the 50-basis-point cut and four votes for a more modest 25-basis-point cut.
It was Copom’s first policy meeting to include two of President Luiz Inacio Lula da Silva’s nominees to the central bank’s board, whom central bank chief Roberto Campos Neto joined in voting for the more aggressive interest rate reduction.
Brazil’s first rate cut in three years came after policymakers held borrowing costs steady since September 2022, following 1,175 basis points of rate hikes to battle inflation, the world’s most aggressive monetary tightening at the time.
