Brazil cut its benchmark interest rate to 9 per cent as expected on Wednesday, dropping it to a near historic low that may spell the end of the central bank’s aggressive easing cycle to revive Latin America’s largest economy.
The bank’s monetary policy committee, known as Copom, voted unanimously for a hefty 75 basis-point rate cut, its sixth straight cut since August.
Brazil’s economy has been flirting with recession since the second half of last year, and President Dilma Rousseff has expressed hopes that lower rates will help spur consumer spending and spark a return to healthy growth.
The accompanying Copom statement was surprising, as it clearly signaled that the process of interest-rate cuts will continue:
“The Copom considers that, at this moment, there are limited risks for the inflation path. The committee also notes that, up to now, the contribution of the external sector has been disinflationary, given the fragility of the global economy. Therefore, continuing the monetary adjustment process, the Copom decided, by a unanimous vote, to reduce the Selic rate to 9 percent per year, without bias.”
With this favorable inflation scenario, the Copom opted for “continuing the monetary adjustment process”. According to analysts at Itau BBA, in the past, this expression signaled further interest-rate adjustments. This may be a sign that interest rates will fall again in the next Copom meeting. Many analysts expect at least one additional 50bp-cut in the Selic rate in May to 8.5%.