Brazil Central Bank Says Tightening Effects Yet to Be Felt, Signals Pause in Rate Hikes

• Brazil's central bank said on Tuesday that much of the impact from its "particularly quick and very firm" tightening cycle is yet to be felt, which is why it now foresees a pause in interest rate increases to assess those effects.
• In the minutes of last week's decision, when the monetary policy committee Copom raised rates by 25 basis points to 15.0% and signalled a "very prolonged" pause ahead. The central bank also stressed that it will still assess whether the current rate is appropriate to bring inflation back to target.
• Reiterating that it will not hesitate to resume hikes if needed, the central bank sought to stress that the pause does not necessarily mark the end of the tightening cycle, a message likely aimed at discouraging premature bets on when it might start easing borrowing costs.
• Despite the aggressive tightening, Latin America's largest economy has continued to outperform expectations, supported by resilient economic activity and a tight labour market, with annual inflation running well above the 3.0.% target.
• "How do you stop raising interest rates in a scenario like this? By trusting the lags of monetary policy. ... So now it's time to wait for it to take effect," said Luis Otavio Leal, partner and chief economist at G5 Partners, who expects an initial rate cut early next year.

(Source: Reuters)