Central Bank of Brazil cuts rate by 50bp

The Central Bank of Brazil’s (BCB) monetary policy committee, known as Copom, cut its headline rate by 50 basis points on March 20 to 10.75%. 

The bank said it anticipates another cut of the same magnitude at its next meeting in May in a prepared statement.

All nine voting members of Copom voted in favour of the rate cut. The BCB has been cutting the benchmark Selic rate gradually since August. 

Inflation, measured by the national consumer price index, was 4.5% year on year in February. It has slightly decelerated since its recent peak of 5.19% in September 2023. The real was trading at 4.98 to the dollar today (March 22). 

The bank said economic indicators are in line with its expectations. “Inflation expectations for 2024 and 2025 collected by the Focus survey are around 3.8% and 3.5%, respectively,” it said. 

“Copom’s inflation projections in the [base case scenario] stand at 3.5% for 2024, and 3.2% for 2025. Inflation projections for administered prices are 4.4% for 2024, and 3.9% for 2025.”

The bank said it sees risks in both directions for the economy. Global pressures and a tighter output gap threaten inflation to the upside, said the bank. Global deceleration and global synchronised tightening threaten recessionary risks, it added. 

Unemployment stood at 7.4% in December. It has decelerated since March 2023 when it stood at 8.8%. 

“The committee judges that the environment continues to require caution from emerging market economies,” said the bank.