Rapid entry into the interest rate reduction process in Brazil

Brazil’s central bank has started a more aggressive rate-cutting campaign than expected, cutting it by 50 basis points. The central bank of Brazil cut its interest rate by 50 basis points more than expected, signaling that more cuts of the same size are coming. The central bank has reinforced its dovish rhetoric amid President Luiz Inacio Lula da Silva’s policy of lower borrowing costs. Policymakers led by Roberto Campos Neto cut the Selic rate to 13.25% late Wednesday, as only 11 of 41 analysts polled by Bloomberg expected. In an accompanying statement, the policymakers wrote that the outlook for consumer prices has improved and long-term inflation expectations have fallen. “If the scenario develops as expected, the committee members unanimously expect further reductions of the same magnitude at subsequent meetings. This pace is considered appropriate to maintain the contractionary monetary policy necessary to combat inflation,” the statement said. Brazil’s larger-than-expected cut comes just days after Chile cut interest rates more than economists had expected. Mexico and Peru are seen easing policy by the end of the year. Meanwhile, advanced economies that were slow to tackle inflation are not out of the woods yet. Last week, both the Fed and the European Central Bank left the door open to further borrowing cost increases.