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Brazil Monetary Policy January 2024

Brazil: Bank delivers fifth 50 basis point cut in January

At its first scheduled meeting of the year on 30–31 January, the Monetary Policy Committee (COPOM) of the Central Bank of Brazil (BCB) continued its loosening cycle, slashing the benchmark SELIC rate by an additional 50 basis points to 11.25%. The move was the fifth consecutive half-percentage-point reduction. The decision was once again unanimous and had been priced in by markets as the BCB followed the path it announced at its prior meeting.

The cut was driven by the continued disinflation process. Moreover, the Bank noted that the ongoing loosening cycle is consistent with its objective of bringing inflation to an acceptable level “over the relevant horizon, which includes the years 2024 and 2025”, as the policy stance remains restrictive. In particular, the BCB’s baseline inflation expectations for 2024 and 2025 were unchanged from December at 3.5% and 3.2%, respectively. Consequently, it forecasts inflation will overshoot the 3.0% target but fall within the 1.0–5.0% tolerance band.

The communiqué’s forward guidance stated that, if the Bank’s baseline scenario materializes, it would cut interest rates by another 50 basis points when it convenes next on 19–20 March. That said, it reiterated that risks to the inflation outlook remain two-sided. Consequently, the policy stance will remain restrictive, and the magnitude of cuts may vary until the disinflation trend is consolidated and inflation expectations are fully anchored at the target.

All of our panelists see further interest rate cuts this year, although there is a wide forecast spread: Between 125–425 basis points of further reductions are expected.

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