Brazil to Cut Selic to 14% After Inflation Slows More Than Expected
Brazil's central bank will lower the Selic by 25bp to 14% on Wednesday after inflation slowed more than expected, economists said. The move brings total easing to 100bp since March.
Brazil's central bank will lower the Selic by a quarter-point to 14% on Wednesday, economists said, after inflation slowed more than expected in early July. The move would bring total easing since March to 100 basis points, according to a Bloomberg survey of all economists surveyed.
Policymakers led by Gabriel Galípolo have avoided committing to a predefined path for rates, arguing that elevated uncertainty at home and abroad requires maximum flexibility, the bank has said. By shunning forward guidance, the central bank has prompted markets to recalibrate their calls after major data releases.
Economists surveyed by the central bank lowered their year-end Selic forecast to 13.75% from 14%, according to the poll published on Aug. 3. Still, consumer price forecasts for the first quarter of 2028 – which is the board's relevant horizon for monetary policy – remain above the 3% target.
The conflict in the Middle East keeps oil prices volatile, while severe weather fueled by El Niño raises the risk of higher food costs. A more hawkish Federal Reserve could strengthen the dollar, weaken Brazil's real and make imports more expensive.
Alberto Ramos, chief Latin America economist at Goldman Sachs, said policymakers are likely to keep the door open in case the external environment improves or incoming data become more supportive of additional easing. "A 25-basis-point cut remains the most likely outcome at this stage," Ramos said. "I don't expect the central bank to abandon its hawkish tone. From a credibility standpoint, it's difficult to argue that there's clear evidence of easing underlying inflation based on a single month's data."
For former central bank director Diogo Guillen, now chief economist at Itau Unibanco, Wednesday's rate cut will reflect policymakers' view that the local outlook has become slightly more favorable, even as the external environment remains unpredictable and longer-term inflation expectations have deteriorated.
The decision will be announced after 6:30 p.m. in Brasilia, along with a statement from the bank's board.
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