Brazil's central bank kicked off its rate-cutting cycle more aggressively than expected on Wednesday, reducing its benchmark interest rate by 50 basis points and signaling more of the same in the months ahead due to an improving inflation outlook.
The bank's rate-setting committee Copom cut its Selic policy rate to 13.25%, as just 10 of 46 economistsBrazil's first rate cut in three years came after policymakers held borrowing costs steady since September 2022, following 1,175 basis points of rate hikes to battle inflation, the world's most aggressive monetary tightening at the time.
"The relatively dovish tone ... suggests that policymakers' inflation concerns are dissipating more quickly than we'd anticipated," said William Jackson, chief emerging markets economist at Capital Economic, in a note to clients. It was Copom's first policy meeting to include two of President Luiz Inacio Lula da Silva's nominees to the central bank's board, whom central bank chief Roberto Campos Neto joined in voting for the more aggressive interest rate reduction.
Lula's leftist government has eased investor concerns with new fiscal rules in Congress and a landmark reform on consumption taxes. Fitch Ratings recognized progress on the government's economic agenda in a decision last week to upgrade Brazil's sovereign rating.
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