By Gabriel Burin
BUENOS AIRES, Aug 3 (Reuters) – Brazil’s central bank is set to cut interest rates for a fourth consecutive time, when it meets on August 5, a Reuters poll showed, with inflation concerns preventing a faster reduction of one of the highest base borrowing rates among major economies.
Analysts said policymakers, managing an economy growing modestly and with a government that has limited fiscal room because of the high cost of borrowing, probably will refrain from giving clues about the path ahead.
The bank’s monetary policy committee, known as Copom, has brought rates down to 14.25% from a near-two-decade high of 15% in three quarter-point cuts since the start of the year.
This small-step approach is likely to be extended on Wednesday, keeping the Selic rate at a still-restrictive level against persistent price pressures despite some inflation relief last month.
Copom will cut the benchmark by a quarter-point to 14.00% at its meeting on Wednesday, according to 38 of 42 analysts polled between July 27 and 31. Four expected the Selic to stay at 14.25%.
Julio Cesar Barros, an economist at Banco Daycoval, said he expected Banco Central do Brasil’s policy statement to avoid offering significant guidance after its reference to 2028 inflation trends in June led to market confusion.
“They will try to be as concise as possible in the communication of this meeting, characterizing an economy that continues to show a resilient labour market, inflation still above target, and unanchored expectations,” he added.
The bank is forecast to stay on hold at 14.00% until the start of 2027, according to the median estimate of 38 respondents who gave quarterly views. BCB is then expected to resume a gradual loosening campaign after the inauguration in January of the government to be elected in October’s presidential vote.
However, nearly half of respondents who answered an extra question on Copom’s next decision, 15 of 32, saw a fifth consecutive 25-basis-point move in September. Seven viewed a cut in January and the rest in other months.
Myria Bast, deputy chief economist at Banco Bradesco, said another cut in September was justified as the inflation outlook had improved due to the waning impact of the initial oil price shock from the U.S.-Israeli war with Iran.
“Since the last Copom meeting, the data have come in better … the effects of (tight) monetary policy are becoming apparent, with growth moderating and inflation dissipating,” she said.
But Citi analysts listed further de-anchoring in inflation expectations, fiscal expansion ahead of the presidential vote in October, and resilient economic activity as reasons for rates to stay on hold this week.
“Our call is based on the worrisome dynamic of inflation expectations, which continue to de-anchor from the 3.0% target for longer horizons – 2027-2028 – despite the recent lower-than-expected inflation prints,” Citi said in a report.
(Other stories from the Reuters global economic poll)
(Reporting and polling by Gabriel Burin in Buenos Aires; additional reporting by Isabel Teles in Sao Paulo; Editing by Ross Finley and Tomasz Janowski)
Comments