Brazilian Central Bank cuts interest rate after three years

The Brazilian Central Bank announced a half percentage point cut to the country’s benchmark interest rate — now set at 13.25 percent. Markets expected the cut, but most speculators only predicted a rate reduction of a quarter percentage point.

This first decrease in three years reflects a much more benign inflation outlook, says Gustavo Sung, chief economist at Suno Research, a São Paulo-based market analysis house. Just 13 months ago, Brazil’s official consumer price index was in the double digits. 

Now, 12-month inflation is back to target levels, with core inflation (which strips out more volatile items) also going down to within the government’s target band. “The committee considered the alternative option to reduce the Selic benchmark rate to 13.5 percent but concluded that it was appropriate to adopt a 0.50 percentage point pace in this meeting,” the committee said in a statement. 

To justify its move, the bank cited “an improvement in...