Brazil’s central bank has announced a half-percentage point reduction in its key interest rate, signalling its commitment to maintaining a consistent easing strategy in upcoming meetings. This decision follows a moderation in inflation within the acceptable range and indications of economic softening. The benchmark Selic rate was lowered to 11.25% on Wednesday, aligning with expectations from all analysts surveyed by Bloomberg and in line with prior guidance from the monetary authority. Since August, policymakers have collectively lowered borrowing costs by 2.5 percentage points.
In a statement accompanying the decision, central bank board members indicated their unanimous anticipation of further reductions of similar magnitude in the coming meetings. They deemed the current pace of easing as appropriate to support the necessary contractionary monetary policy for the ongoing disinflationary process.
Under the leadership of Roberto Campos Neto, central bankers have opted for a gradual approach to monetary easing, despite recent data showing a third consecutive monthly slowdown in annual inflation, surpassing economists’ expectations. As uncertainty dissipates and demand adjusts to stringent financial conditions, many economists are revising down their forecasts for inflation this year, anticipating further moderation in the second half.
Fernando Honorato, chief economist at Banco Bradesco SA, expressed optimism about the improving outlook, foreseeing additional inflation easing in the latter part of the year.
Bloomberg Economics analysis underscores the central bank’s cautious stance, highlighting the challenge posed by unanchored inflation expectations domestically, potentially restraining policymakers from capitalizing on lower global rates to accelerate the easing pace. The outlook suggests further half-point cuts at the next two meetings before transitioning to smaller adjustments, with a projected year-end policy rate of 9%.
