Brazil central bank likely to cut interest rates again

The Central Bank of Brazil is likely to cut interest rates once again to a new low on Wednesday as stubbornly muted inflation derailed its plans to halt monetary easing.

Copom, monetary policy committee of the central bank, is widely expected to reduce the benchmark Selic interest rate by 25 basis points to 6.50 per cent at the end of a two-day meeting.

The decision is expected to be announced at 6:00pm local time (2100 GMT) on Wednesday, reports Reuters.

Investors of the world's eighth largest economic country will watch the central bank’s policy statement closely for clues on the possibility of a further cut at its May meeting.

While the reduction to be the last in the deepest easing cycle in a decade, the bank may choose to keep its options open after getting caught on the back-foot by a string of weak inflation figures.

Earlier, in the February minutes, the committee stated that low and falling core inflation could open room for additional monetary easing, Santander Brasil economists wrote in a report.

“We believe this is exactly what most recent indicators have been showing,” they said in the report.

“Copom will probably, in our view, leave the door open for an additional cut in May should inflation expectations continue to fall,” they wrote.

The central bank had strongly hinted that it intended to halt interest cuts at its last policy statement but the minutes to that meeting suggested some disagreement over that message.

Earlier this month, the central bank chief Ilan Goldfajn acknowledged that policymakers were surprised by the slow pace of price hikes which stoking bets on further rate cuts, reports Reuters.

After ending last year below the bottom-end of the government’s target range, inflation continues to underwhelm this year amid double-digit unemployment rates and widespread idle capacity.

Economic growth of the country has picked up following the deepest recession in decades, but the recovery has been more uneven than expected.

As the most wide-open and hard-to-predict elections in over twenty years fast approaching, the case for easy monetary policy is not a hard sell, the report said.