Brazil’s central bank poured cold water over bets on a faster pace of interest rate cuts and cited a number of factors that could determine the length of the monetary easing cycle, including long-term inflation expectations which remain above target.
(Bloomberg) — Brazil’s central bank poured cold water over bets on a faster pace of interest rate cuts and cited a number of factors that could determine the length of the monetary easing cycle, including long-term inflation expectations which remain above target.
“The Committee judges that there is low probability of an additional intensification in the pace of adjustment, since this would require substantial positive surprises that would raise even further the confidence in the prospective disinflationary dynamics,” central bankers wrote in the minutes of their Sept. 19-20 policy meeting published on Tuesday.
Policymakers are pursuing “much more solid” improvement in inflation expectations, which remain above their 3% goal in place from 2024 to 2026. Some members of the board were “particularly concerned” about estimates for future price increases that have been steady at 3.5% for the last three months.
“Copom assesses that the reduction of expectations will come through a firm conduct, in line with the goal of strengthening the credibility and the reputation of both institutions and economic frameworks,” they wrote.
Read More: Brazil Delivers Half-Point Rate Cut, Reaffirms Steady Easing
Policymakers led by Roberto Campos Neto are easing monetary policy as services inflation wanes. They have reaffirmed their plan to stick to half-point rate cuts at least through December, relaxing monetary policy gradually after an aggressive tightening campaign that had raised borrowing costs to a six-year high.
What Bloomberg Economics Says
“Brazil’s central bank used the minutes of its Sept. 20 meeting to illustrate why it’s unlikely to accelerate the pace of rate cuts. The document set out policymakers’ views on the growth and inflation outlooks and their implications for the rate path. Emerging from that debate, the minutes made it clear — all interpretations pointed to a cautious easing pace.”
— Adriana Dupita, Brazil and Argentina economist
Click here to read the full report.
Annual inflation accelerated for the second straight month in mid-September, to 5%, the national statistics institute reported later on Tuesday. As more expensive fuel ripples through the economy, transportation costs and food away from home rose, driving price pressures above the central bank’s tolerance ceiling for this year.
The economy remains resilient to high rates after a bumper harvest, resilient labor market and strong services demand boosted activity past most forecasts during the first half of the year.
Investors are increasingly concerned about Brazil’s fiscal outlook, as the government backs measures to raise income and deliver on its pledges to eliminate next year’s primary fiscal deficit, which excludes interest payments. In the minutes, central bankers underscored the importance to deliver on those goals.
Brazil is one of a growing list of Latin American nations — including Peru, Chile, Uruguay and Paraguay — which have relaxed monetary policy in recent weeks.
–With assistance from Giovanna Serafim.
(Updates with inflation data in sixth paragraph)
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