Brazil’s central bank dropped its key interest rate by a larger-than-expected half-point on Wednesday, marking the country’s first rate cut in three years as emerging nations begin to shift toward monetary easing.
The bank’s monetary policy committee announced a five-to-four vote to lower the benchmark Selic rate to 13.25 percent, kicking off an easing cycle long sought by leftist President Luiz Inacio Lula da Silva, who claimed high interest rates were stifling Latin America’s largest economy’s growth.
The four opposing votes, which are unprecedented for the committee, were for a smaller, quarter-point cut, in accordance with most analysts’ projections.
The committee “evaluated the alternative of reducing the benchmark interest rate to 13.5 percent, but considered it appropriate to adopt the pace of a 0.5 percentage point cut given the improving inflation situation,” according to a statement.
It declared that it was the start of a “gradual cycle of monetary loosening,” and that its members “unanimously” expected another half-point decrease “in the coming meetings,” the next of which will be held on September 20. Finance Minister Fernando Haddad hailed the decision.
“Inflation is under control, we’re planning for the economy’s future. Investors, consumers and families are going to be able to plan for a Brazil of fiscally, socially and environmentally sustainable growth,” he said.
“We are committed to fighting inflation and also to fiscal responsibility and the (monetary) adjustment that’s being undertaken, which will get easier from here.”
Analysts had been split over whether the bank — which is legally independent of the government — would cut the key rate by a quarter or half a percentage point, though most had forecast the former, given the bank’s hawkish history.
“The relatively dovish tone of the accompanying statement suggests that policymakers’ inflation concerns are dissipating,” consulting firm Capital Economics said in a note.
