Brazil’s Central Bank doubles down on slowing rate cuts

The Brazilian Central Bank on Tuesday released the minutes of its latest policy meeting, after which it decided to make a scant 0.25-point cut to the country’s benchmark interest rate, which now stands at 10.5 percent.

The bank’s Monetary Policy Committee (Copom) reinforced the change in forward guidance signaled by last week’s decision and doubled down on its message of growing concern regarding Brazil’s fiscal fragility and the more adverse global environment for emerging economies. 

Last week’s rate decision came after a 5-4 vote, in which all five board members appointed by far-right former President Jair Bolsonaro voted for the smaller rate cut, while all four members named by the current Luiz Inácio Lula da Silva administration wanted to continue the half-percentage-point cuts of the committee’s previous six meetings.

The minutes mention “the heightened and persistent uncertainty about the beginning of the easing cycle in the U.S.” and its potential effects on Brazil’s inflation. “Despite the split vote, the minutes are distinctively hawkish,” wrote Alberto Ramos, Goldman Sachs’s lead economist for Latin America, in a note to clients.

Copom reiterated its message about how “a credible fiscal policy, committed to debt sustainability” affects monetary policy, but made it clearer how this factor may be the most significant in influencing the “recent de-anchoring of inflation expectations,” even more than the stronger-than-expected resilience of the Brazilian economy and its effects on prices of labor-intensive activities. 

More importantly, the minutes portray the split decision based on technical arguments, rather than purported ideological differences between committee members. The four Lula appointees who called for the 0.50 percent cut focused on the opportunity cost of not following the guidance...