(Bloomberg) -- Brazil cut its benchmark interest rate by half a percentage point to a record low and said it will exercise caution in its next monetary policy decision, leaving the door open for additional easing.
The bank’s board, led by its President Roberto Campos Neto, on Wednesday lowered the Selic rate to 4.5%, as expected by all 53 economists in a Bloomberg survey. It was the fourth straight reduction of 50 basis points, and it came hours after the U.S. Federal Reserve kept its key rate on hold.
The central bank “judges that the current stage of the business cycle recommends caution'' on monetary policy, bank board members wrote in a statement issued after the decision. “The Committee emphasizes that its next steps will continue to depend on the evolution of economic activity, the balance of risks, and inflation projections and expectations.”
The central bank is ramping up monetary stimulus to jolt an economy that has only recently shown signs of gaining steam, after nearly three years of disappointing performance. They extended a record-breaking monetary easing cycle even after food costs jumped and the real hit a record low, potentially fueling inflation. Despite those shocks, analysts still see consumer prices running below target next year.
“The inflation outlook remains benign, even if prices picked up due to temporary factors, such as meat costs,” Luciano Rostagno, chief strategist at Banco Mizuho, said before the rate decision. “That wasn’t enough to change the central bank’s plans for a reduction.”
In the 12 months through November, consumer prices rose 3.27%, according to the national statistics agency. Policy makers target inflation at 4.25% this year and 4% in 2020.
Since the prior rate-setting meeting in late October, the real has weakened more than 3%, the second-worst drop in emerging markets. Campos Neto has said the Brazilian currency’s depreciation hasn’t translated into worse inflation expectations, and that the country’s risk premium has improved.
(Adds central bank comment in third paragraph)