Brazil Central Bank to Cut Rates for Fourth Straight Meeting on August 5
- Brazil's central bank is set to cut interest rates for a fourth consecutive time when it meets on August 5, a Reuters poll showed, with inflation concerns preventing a faster reduction of one of the highest base borrowing rates among major economies.
- The bank's monetary policy committee, known as Copom, has brought rates down to 14.25% from a near-two-decade high of 15% in three quarter-point cuts since the start of the year. This small-step approach is likely to be extended on Wednesday, keeping the Selic rate at a still-restrictive level against persistent price pressures despite some inflation relief last month.
- Myria Bast, deputy chief economist at Banco Bradesco, said another cut in September was justified as the inflation outlook had improved due to the waning impact of the initial oil price shock from the U.S.-Israeli war with Iran. “Since the last Copom meeting, the data have come in better, the effects of (tight) monetary policy are becoming apparent, with growth moderating and inflation dissipating,” she said.
- However, Citi analysts listed further de-anchoring in inflation expectations, fiscal expansion ahead of the presidential vote in October, and resilient economic activity as reasons for rates to stay on hold this week.
- “Our call is based on the worrisome dynamic of inflation expectations, which continue to de-anchor from the 3.0% target for longer horizons - 2027-2028 - despite the recent lower-than-expected inflation prints,” Citi said in a report.
- Following the expected 25-basis-point cut this week, the Reuters poll suggests the Selic rate will remain at 14.00% through the end of 2026, the bank is forecast to stay on hold at 14.00% until the start of 2027, according to the median estimate of 38 respondents who gave quarterly views. The central bank is then expected to resume a gradual loosening campaign after the government elected in October's presidential vote is inaugurated in January.
(Source: Reuters)