Brazil rates to hit new low 4.50%, but may be last cut of cycle: Reuters poll

[December 09, 2019]  By Jamie McGeever

BRASILIA (Reuters) - Brazil's central bank will lower its key interest rate to a new low of 4.50% on Wednesday, according to the unanimous view of economists in a Reuters poll, but stronger-than-expected economic data suggest this may be the last cut in the cycle.

While inflation is well below the central bank's target and widely expected to stay there next year, growth has picked up, suggesting the economy is beginning to respond to monetary stimulus and the government's economic reforms.

All 30 economists surveyed said the bank's rate-setting committee known as Copom will reduce its Selic rate by half a percentage point at its the fourth consecutive meeting, as Copom strongly indicated at its last meeting in October.

But the outlook has shifted considerably. The unanimous expectation for lower rates over the next 12 months in the previous poll has evaporated, and there is not even a majority saying the Selic's skew is to the downside.

Of the 26 who gave a view, 13 said the skew for rates over the next year is to the downside, 10 said neutral, and three said to the upside. In October, all 25 economists polled said rates would be lower in a year's time.

Copom is expected to announce its decision after 6 p.m. (2100 GMT) on Wednesday at the conclusion of a two-day meeting.

"I don't see Copom lowering below 4.50%," said William Jackson, chief emerging markets economist at Capital Economics.

The central bank headquarters building is seen in Brasilia, Brazil October 29, 2019.REUTERS/Adriano Machado

"Although the economy is recovering, it won't be growing quickly enough to generate sustained price pressures, so I don't think there will be a case for tightening over the next 12 months," he said.

The game-changer appears to be the third-quarter GDP data last week, which showed the economy expanded by 0.6%. That was faster than expected — the fastest since early last year — and prompted some economists to raise their growth projections for next year further above the 2.0% mark.

Inflation remains well contained, with no sign that the Brazilian real's record-low exchange rate against the dollar is feeding into higher prices or higher inflation expectations.

In a statement accompanying its October rate cut, Copom said the benign outlook for inflation "should allow for an additional adjustment of equal magnitude," all but guaranteeing a cut this 7week in the eyes of economists.

(Reporting by Jamie McGeeverAdditional reporting by Gabriel Burin in Buenos AiresEditing by Brad Haynes and Cynthia Osterman)

[© 2019 Thomson Reuters. All rights reserved.]

Copyright 2019 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.  Thompson Reuters is solely responsible for this content.