Brazil’s central bank cut its benchmark interest rate by half a percentage point for the second straight time and pledged to keep the same pace of monetary easing during the next few meetings as a closely-watched measure of services inflation slows.
The bank lowered the Selic to 12.75% late on Wednesday, as expected by all 40 analysts surveyed by Bloomberg. The decision was in line with the bank’s prior guidance, which policymakers maintained unchanged.
Policymakers led by Roberto Campos Neto delivered their first rate cut since 2020 in August after holding borrowing costs at a six-year high for 12 months. Still, activity remains resilient to tight monetary policy, raising doubts about the amount of slack in the economy.“They are moving with caution and parsimony because they need more evidence of disinflation in the services sector,” economist Leonardo Costa of Asa Investments said ahead of the rate decision.
By contrast, several Latin American countries aside from Brazil have also been relaxing monetary policy, including Peru, Chile and Uruguay. Earlier on Wednesday, Paraguay cut rates by 25 basis points to 8%.After peaking at more than 12% in 2022, Brazil’s annual inflation now stands at 4.61%, within the central bank’s target range, and closely-watched services costs are starting to ease. Policymakers target price growth of 3.25% in 2023 and then 3% through 2026, with tolerance of plus or minus 1.
Central bankers see the forecasts as a sign they have accomplished a soft landing of the economy, tightening monetary policy without crippling employment or activity. Still, analysts forecast inflation to remain above the bank’s goal through 2026.
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