Brazil inflation hits lowest in nearly 10 years in April

BRASILIA (Reuters) - Brazil’s annual inflation rate fell in April to its lowest level in nearly 10 years, bolstering the view of a steep interest rate cut by the central bank at the end of this month.

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Consumer prices rose 4.08 percent in the 12 months through April, slightly below market forecasts for a 4.10 percent increase and compared with an increase of 4.57 percent in the year to March, the national statistics bureau IBGE said on Wednesday.

It marked the lowest annual inflation rate in Brazil since July 2007. It was also below the government target of 4.5 percent.

In the month of April, consumer prices edged up 0.14 percent compared with a 0.25 percent rise in March, the IBGE said.

Annual inflation has tumbled rapidly from a 12-year peak of 10.7 percent in January 2016 as the worst recession on record in Brazil caused massive unemployment and reduced consumer demand.

As inflationary pressures have eased, the central bank has steadily reduced its benchmark interest rate from 14.25 percent last October.

Last month, the bank slashed it by 100 basis points to 11.25 percent. It was the deepest cut to the rate in nearly eight years.

In morning trade, yields on interest rate futures fell.

They now reflect traders' view of a 30 percent chance that the central bank would cut the rate by 125 bps at the May 31 meeting of its monetary policy committee (COPOM) and a 70 percent likelihood of a 100 bps reduction, according to Thomson Reuters calculations. BCBWATCH

On Tuesday, the outlook was for a 20 percent probability of a 125 basis cut.

“With headline inflation now below target, COPOM’s main focus will be the on the progress of fiscal reforms through Congress,” wrote Edward Glossop, emerging markets economist at Capital Economics.

A major investor focus is the prospect of congressional approval of a pension reform bill, the cornerstone of a government plan to curtail a gaping budget deficit.

A one-off cut in electricity rates helped curb inflation last month as the government reversed a tariff surcharge related to the Angra 3 nuclear power plant.

Fuel prices also dropped, but food costs rose at a faster pace than in March, the IBGE data showed.

Reporting by Silvio Cascione; Editing by Chizu Nomiyama and W Simon