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Brazil Monetary Policy December 2023

Brazil: Bank cuts by 50 basis points again in December

At its 12–13 December meeting, the Monetary Policy Committee (COPOM) of the Central Bank of Brazil (BCB) continued its loosening cycle and slashed the benchmark SELIC rate by a further 50 basis points to 11.75%. The move followed November’s cut and was the fourth consecutive half-percentage-point reduction. The decision was once again unanimous and had been priced in by markets; the Bank did not deviate from the path it announced in November.

The decision to cut was driven by both headline and core inflation slowing in October and November. Moreover, the BCB also noted that economic activity has slowed recently, in line with the Bank’s expectations. In addition, the Bank downwardly revised its baseline inflation scenario for 2023 and 2024 to 4.6% and 3.5%, respectively, and maintained the 2025 forecast at 3.2%. Despite lower inflation expectations, the BCB saw inflation remaining above its 3.25% target in 2023 and 3.00% target for 2024–2025.

The Bank stated that, despite the rate cut, monetary policy remains restrictive and is consistent with the ongoing disinflation process that should bring inflation to “around the target over the relevant horizon, which includes the years 2024 and 2025”.

The Bank’s communiqué emphasized once again that risks to the inflationary outlook remain in both directions. Consequently, the BCB stated it would maintain a contractionary policy stance until the disinflation process is consolidated and inflation expectations are fully re-anchored to target. That said, the Bank stated that if its baseline inflation scenario materializes, it will cut rates by a further 50 basis points at its next meeting, set for 30–31 January.

Our panelists see further cuts throughout 2024.

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