BRASILIA (Reuters) - Brazil’s central bank cut interest rates below 10 percent for the first time since 2013 on Wednesday and signaled it could keep up its pace of easing as plunging inflation gives it leeway to aid an incipient recovery.
The bank’s nine-member monetary policy committee, known as Copom, cut its benchmark Selic rate BRCBMP=ECI by 100 basis points for the third straight time to 9.25 percent. The decision was widely expected by economists in a Reuters poll.
It was the seventh cut since October in a cycle expected to take rates as low as 8 percent by the end of the year, according to a Reuters poll of economists. The last time the Selic rate was below 10 percent was in November 2013.
Lower interest rates should help Brazil’s economy accelerate after its worst recession on record ended in the first quarter. Inflation, which surpassed 10 percent less than two years ago, has plunged to just 2.78 percent, the lowest in 18 years and below the lower boundary of the official target range.
With rates below 10 percent, Brazil joins other large developing nations such as India, South Africa and Russia which enjoy single-digit benchmark borrowing costs, as well as regional economies like Mexico, Colombia and Peru.
The bank said it could continue to cut rates at Wednesday’s pace at its next meeting in September, depending on the economic outlook and on prospects for measures to reduce public spending and boost productivity.
Progress has been mixed on that front. The government managed to approve a sweeping overhaul of labor rules this month, but a landmark reform of the pension system has stalled since President Michel Temer was accused of corruption in May.
In another signal the easing cycle was far from over, the central bank cut its inflation forecasts for 2017 and 2018 to 3.6 and 4.3 percent respectively, from 3.8 and 4.5 percent in the quarterly inflation report last month.
“The problems facing President Temer have not yet pushed Copom to make wholesale changes to its forecasts for the economy,” wrote Neil Shearing, chief emerging markets economist at Capital Economics, who dubbed the post-meeting statement as “dovish”. “(It) should be positive for local currency bonds.”
Reporting by Silvio Cascione; Editing by Andrew Hay