The Brazilian Central Bank’s Monetary Policy Committee on Tuesday published the minutes of its latest policy meeting — detailing the unanimous decision to cut the benchmark interest rate by a half percentage point to 12.75 percent.
Citing challenging external factors such as “an increase in long-term interest rates in the U.S. as well as forecasts of lower growth in China,” the committee raised concerns about inflation — as market-based inflation expectations for both 2023 and 2024 continue to hover above government targets.
As a matter of fact, official inflation rates have ticked up in recent months, as the Central Bank expected. This trend could continue in September — as the mid-month inflation rate (the IPCA-15 index) came at 0.35 percent, higher than in August.
The 12-month IPCA-15 is not at 5 percent, with a year-to-date total of 3.74 percent. While above year-end inflation targets, it remains slightly more benign than markets had expected. As polled by Valor Data, markets predicted a 0.38 percent jump for the IPCA-15 in September.
In its policy committee minutes, the Central Bank elucidated certain factors potentially contributing to inflation expectations surpassing the target. These include fiscal concerns (markets don’t believe the government will be able to meet its zero-deficit goals in 2024), global disinflation, and the potential perception among analysts that the committee could adopt a more lenient approach to inflation control over time.
In this context, the committee emphasizes that it remains in full inflation-control mode, highlighting the need for a cautious and contractionary monetary policy. Despite many within the government believing that Brazil’s sky-high interest rates give the Central Bank more room for rate cuts, the committee anticipates that future policy meetings will steer rate reductions no higher than 0.5 points.
“This pace brings together, on the one hand, the firm commitment with the re-anchoring of expectations and the disinflationary dynamics and, on the other hand, the adjustment in the level of monetary tightening in real terms in the face of the more benign dynamics of the anticipated inflation in the reference scenario projections,” the minutes say.
Search
