Brazil to Seize on Inflation Surprises With Another Interest Rate Cut

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Or sign-in if you have an account.04fb7n3nclynl395lyt1wh[3_media_dl_1.png BECO MODELS FORECASTS (Bloomberg) — A string of benign inflation reports in Brazil has cemented market bets on another interest rate cut this month and prompted some economists to consider further monetary easing this year. 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The move would bring total easing since March to 100 basis points. The decision will be announced after 6:30 p.m. in Brasilia, along with a statement from the bank’s board. Brazilian inflation slowed more than expected in early July, while economic activity showed signs of moderation, giving policymakers room to deliver another rate cut and opening the door to additional easing. Economists surveyed by the central bank lowered their year-end Selic forecast to 13.75% from 14%, according to the poll published on Aug. 3. Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try again Still, consumer price forecasts for the first quarter of 2028 — which is the board’s relevant horizon for monetary policy — remain above the 3% target, and the conflict in the Middle East is looming over global energy markets, together underscoring the need for a delicate approach to easing. What Bloomberg Economics Says “A 25-basis-point cut remains the most likely outcome at this stage. I don’t expect the central bank to abandon its hawkish tone. From a credibility standpoint, it’s difficult to argue that there’s clear evidence of easing underlying inflation based on a single month’s data. Policymakers are likely to keep the door open, while maintaining their assessment that the balance of risks remains tilted to the upside.” — Adriana Dupita, Brazil economist Click here to read the full report. Since beginning the easing cycle, policymakers have avoided committing to a predefined path for rates, arguing that elevated uncertainty at home and abroad requires maximum flexibility. By shunning forward guidance, the central bank has prompted markets to recalibrate their calls after major data releases. “Policymakers are likely to keep the door open in case the external environment improves or incoming data become more supportive of additional easing,” said Alberto Ramos, chief Latin America economist at Goldman Sachs & Co. LLC. For former central bank director Diogo Guillen, now chief economist at Itau Unibanco, Wednesday’s rate cut will reflect policymakers’ view that the local outlook has become slightly more favorable, even as the external environment remains unpredictable and longer-term inflation expectations have deteriorated. Whether that improvement continues is uncertain. The Iran conflict is far from resolved, keeping oil prices volatile, while severe weather fueled by El Niño is raising the risk of higher food costs. A more hawkish Federal Reserve could strengthen the dollar, weaken Brazil’s real and make imports more expensive. This advertisement has not loaded yet. This advertisement has not loaded yet, but your article continues below. “Inflation expectations are the biggest anticlimax for the central bank,” said Leonardo Costa, an economist at ASA. “While incoming inflation data justify further cuts, the Focus survey’s 2028 inflation forecast has drifted even further above the 3% target.”Recent data showing better-than-expected job creation and falling unemployment serve as a reminder that the labor market is still supporting demand.The board is likely to become “more data-dependent than ever,” said Caio Megale, chief economist at XP Inc. In that sense, policymakers are likely to let incoming inflation and activity data determine whether easing extends beyond August.—With assistance from Robert Jameson and Giovanna Serafim. Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.