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Brazil Monetary Policy November 2023

Brazil: Central Bank cuts rates further in November

At its 31 October-1 November meeting, the Monetary Policy Committee (COPOM) of the Central Bank of Brazil (BCB) continued its loosening cycle, cutting the benchmark SELIC rate by 50 basis points to 12.25%. The move followed September’s same-sized cut—the third consecutive one—and was once again unanimous. The Bank did not deviate from the path announced in September; hence the reduction had been priced in by markets.

The rate cut came despite both headline and core inflation remaining above the BCB’s target. That said, the Committee noted that activity indicators remained consistent with the BCB’s expectations of an economic slowdown and disinflation.

The Bank once again upwardly revised its baseline inflation scenario for 2024 and 2025—to 3.6% and 3.2%, respectively. That said, it cut its forecast for 2023 to 4.7%. Consequently, the BCB sees inflation remaining markedly above its 3.25% target for this year and its 3.00% target for 2024-2025. Nonetheless, the Bank affirmed that, despite the rate cut, monetary policy remained restrictive and was compatible with bringing inflation back to target “over the relevant horizon, which includes the years 2024 and 2025”.

In its communiqué, the Bank noted that risks to the inflationary outlook remain in both directions. It added that it would maintain a restrictive policy stance until inflation expectations were re-anchored around its targets. That said, if the baseline inflation scenario materializes, another 50 basis point cut can be expected at its next meeting, set for 12-13 December.

Our panelists see further cuts in 2024.

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