Brazil Central Bank Recommends Caution Beyond Next Rate Meeting

(Bloomberg) --

Brazil’s central bank refrained from providing guidance on its easing cycle beyond its next policy meeting in December, opting instead to signal it will remain cautious in efforts to add stimulus to a weak economy.

A benign consumer price outlook should allow for another rate cut "of the same magnitude" next month, the central bank board wrote in the minutes to its last policy meeting published on Tuesday. The central bank has cut the benchmark Selic by 50 basis points in each of its past three meetings.

"The Committee discussed the benefits of signaling beyond the next meeting," central bank board members wrote. "The members of the Copom decided to stress that the current stage of the business cycle recommends caution when considering possible new changes in the degree of stimulus."

Key Insights

• Brazil’s economy likely grew in the third quarter and activity will show some acceleration in upcoming quarters, according to the central bank minutes
• The central bank on Wednesday cut the benchmark Selic by 50 basis points for the third straight meeting, to an all-time low of 5%
• Annual inflation in October is seen below the 2.75% floor of this year’s target range, according to the median estimate in a Bloomberg survey
• Brazil’s real has gained in recent weeks amid expectations of dollar inflows from this week’s oil auction and also a more favorable global outlook

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• In the minutes, policy makers wrote that the international outlook remains largely favorable for emerging markets
• Annual inflation will pick up toward the end of this year
• Economic reforms that help productivity and the overall business environment are needed to provide a further boost to growth

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