June 6, 2017 / 12:46 PM / 2 years ago

UPDATE 1-Brazil c.bank says signaled future decision to reduce uncertainty

(Adds comments, forecasts)

BRASILIA, June 6 (Reuters) - Growing uncertainty over President Michel Temer’s reform agenda prompted policymakers to signal they were poised to reduce the pace of interest rate cuts in July, the central bank said in the minutes of its last rate-setting meeting released on Tuesday.

The bank’s nine-member monetary policy committee, known as Copom, decided last week to lower its benchmark Selic rate by 100 basis points to 10.25 percent. But it added in a statement then that it considered it appropriate to dial down the pace of monetary easing going forward.

“(The committee members) highlighted the necessity to offer guidance at this moment and give elements to reduce uncertainty and the scope of possibilities for the future path of monetary policy,” the bank said in the minutes.

Policymakers judged it appropriate to give more clarity about their next decision as they saw less certainty regarding progress of Temer’s proposals to cut public spending, such as an overhaul of social security rules.

The reform agenda is fundamental to cut inflation in the long term, the minutes said.

The minutes did not make specific references to the corruption investigation against Temer. He has resisted pressure to resign amid accusations he took bribes from the billionaire owners of the world’s largest meatpacker JBS SA. Temer has denied the allegations.

Legal experts and some of Temer’s political allies said his determination to fight corruption accusations could prolong a political crisis for months. That could halt congressional passage of the reform measures, including moves to ease labor regulations and raise the pension age.

A delay or further watering down of Temer’s reform agenda, could hit business and consumer confidence and hamper efforts to close a fiscal deficit that soared past 10 percent of the gross domestic product last year.

Traders have interpreted the bank’s remarks as a signal that it would reduce the size of its rate cut to 75 or 50 basis points at its July 26 meeting, according to Thomson Reuters calculations based on futures contracts.

The central bank has slashed interest rates by 400 basis points since October, as inflation plunged, to spur a recovery from the country’s worst recession on record.

Economists expect the bank to cut the Selic rate to 8.5 percent by year-end, according to a weekly survey. (Reporting by Silvio Cascione Editing by W Simon)

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