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Brazil Monetary Policy March 2024

Brazil: Bank delivers sixth 50 basis point reduction in March

At its 19–20 March meeting, the Monetary Policy Committee (COPOM) of the Central Bank of Brazil (BCB) extended its loosening cycle, slashing the benchmark SELIC rate by a further 50 basis points to 10.75%. The cut was the sixth consecutive half-percentage-point reduction, and it was once again unanimous. The decision had been priced in by markets as the BCB did not deviate from the path it announced at its prior meeting.

The cut was motivated by the ongoing gradual reduction in both headline and core price pressures. While both measures are still above target, the policy stance remains contractionary, and the Bank affirmed that the ongoing reduction in interest rates is still consistent with bringing inflation down to target over “the relevant horizon, which includes the years 2024 and 2025”. Particularly, the BCB’s baseline inflation expectations have remained unchanged since December at 3.5% and 3.2% for 2024 and 2025, respectively. Consequently, the Bank forecasts inflation to remain within its 1.5–4.5% tolerance band but be above the 3.0% mid-point.

The communiqué’s forward guidance mirrored that of the prior meetings; if the COPOM’s baseline inflation expectation scenario materializes, it will slash rates by another 50 basis points when it convenes next on 7–8 May. Even if another cut materializes, the policy stance will still remain restrictive as upside risks to the inflation outlook linger. The Bank added that the size of future cuts is dependent on shifts in the disinflation process and the anchoring of inflation expectations.

Accordingly, our panelists have penciled in 75–275 basis points of additional rate cuts by end-2024.

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