First interest rate cut marks a change of spirit in Brazil’s Monetary Policy Committee

The minutes of the last meeting of the Central Bank’s Monetary Policy Committee (Copom) were published this morning and seem to have caught no analyst by surprise. The document elaborates reasons for decisions taken at last week’s meeting, making it clear that the next cuts will be of half a percentage point apiece — but no more than that.

After months of having to read between the lines and decipher the monetary authority’s intentions, the market now has a broad and unmistakable roadmap to follow.

The minutes send a message to the government of President Luiz Inácio Lula da Silva about how fundamental it is to have the new fiscal framework approved by Congress and implemented for the disinflationary process. But perhaps the most important thing is the description of the deliberation at the Copom table, which shows that the committee’s two newest members have already changed the spirit of the nine-member group.

After three years of hawkish monetary policy, the discussion was not about whether to cut the Selic benchmark rate or not, but rather about whether the first step of the new cycle would start with a bigger or a smaller cut — the second cut, which will come in September, was already agreed to be 0.5 p.p., even by the committee’s most conservative members.

“Regarding the next steps, Copom members unanimously anticipated cuts of 0.50 percentage points in the next meetings and judged that this pace is appropriate to keep the necessary contractionary monetary policy for the disinflationary process,” read the minutes.

Despite the bold first cut of 0.5 p.p., Helena Veronese, chief economist at B. Side Investimentos, believes that the minutes indicate Copom’s lingering caution — the word “contractionary” appeared eight times in the document. Other economists, however, found the minutes’ tone to be quite different from the ones that came before. “Even though the situation today is significantly different from the last meeting, comparing this with the previous minutes is practically a completely different document,” says economist André...