Brazil Central Bank Delivers Fifth Straight Rate Cut, Leaves Next Move Open

• Brazil's central bank cut interest rates by 25 basis points for a fifth straight meeting on Wednesday amid firmer signs of an economic slowdown, while keeping its options open ahead of next month's presidential election. The central bank's rate-setting committee, known as Copom (Comitê de Política Monetária), unanimously lowered the Selic rate to 13.75%, in line with the expectations of 48 of 51 economists polled by Reuters. The remaining three had forecast no change.
• "The total magnitude of the calibration cycle will be established in light of new information aiming to ensure inflation convergence to the target," the central bank reaffirmed in a policy statement that showed only minor changes from the previous meeting. The decision came on the same day that the U.S. Federal Reserve raised its benchmark interest rate to the 3.75%-4.00% range and flagged further increases in coming months.
• The cut extends a cautious easing cycle launched in March that has delivered just 125 basis points of reductions so far, still leaving Brazil with one of the highest real interest rates among major economies. Investors are now looking to Copom's next meeting in early November, just days after what is expected to be a closely contested election runoff between leftist President Luiz Inacio Lula da Silva, who is seeking re-election, and Senator Flavio Bolsonaro, son of former President Jair Bolsonaro.
• Policymakers said fresh indicators suggest a gradual moderation of economic activity, particularly in more cyclical sectors, albeit at a resilient level. Second-quarter gross domestic product data showed a slowdown, while household consumption contracted. Inflation has also eased, although the labor market remains tight.
• At the same time, rising oil prices have re-emerged as a concern amid renewed conflict in the Middle East, and market inflation expectations for next year have edged higher, moving further away from the official 3% target. Additionally, the central bank nudged up its inflation forecasts to 5.2% for 2026 and 3.9% for 2027, from 5.1% and 3.8%, respectively, while its projection for the relevant 18-month policy horizon through the first quarter of 2028 remained unchanged at 3.2%.
• With activity cooling and the statement essentially unchanged, the easing cycle looks set to continue at a 25 basis point pace, though the bank has left itself room to pause if election-related uncertainty lifts inflation expectations.

(Source: Reuters)