October 31, 2017 / 10:49 AM / a month ago

UPDATE 1-Brazil's central bank leaves door open for rate cuts in 2018

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By Silvio Cascione

BRASILIA, Oct 31 (Reuters) - Brazil’s central bank has decided to put off any signals about its 2018 interest rate decisions, the bank said on Tuesday, leaving the door open for lower rates next year as the economy recovers with inflation under control.

In the minutes of the central bank’s Oct. 25 monetary policy meeting, in which it reduced the benchmark interest rate to 7.50 percent, policymakers said they wanted to maintain leeway for action as they monitor inflation expectations and the incipient recovery from a deep recession.

The bank reiterated that a moderate reduction in the pace of easing seems appropriate at its Dec. 6 meeting, signaling it remains likely to cut the Selic rate by 50 basis points, to a record-low 7 percent, after reducing it by 75 basis points last week.

Most economists have been expecting a December rate cut to be the last in the current easing cycle that has nearly halved rates from a decade-high of 14.25 percent in just one year. Some though had interpreted last week’s decision as a signal the bank was preparing to cut rates as low as 6.50 percent in 2018.

The bank reiterated the importance of structural reforms for keeping interest rates low in the long run, especially given the risk of external shocks.

The bank also said marginal revisions to growth forecasts are unlikely to affect inflation forecasts, after comments by Finance Minister Henrique Meirelles about a potential upward revision to 2018 growth expectations.

Brazil’s economy has resumed growth after two years of a profound recession that shed nearly 3 million jobs and left huge idle industrial capacity. Inflation has plunged from double-digits to less than 3 percent, far below the official target of 4.5 percent, and is forecast by the central bank to stay around the goal through the end of 2019. (Reporting by Silvio Cascione; Editing by Alison Williams and Peter Graff)

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