Brazil central bank cuts rate by 25bp; inflation expectations unanchored
Brazil's Monetary Policy Committee (Copom) cut the basic interest rate by 0.25 percentage points at its April 28-29 meeting. The decision comes as inflation expectations remain unanchored and geopolitical uncertainties persist.
Unanchored expectations demand caution
The Copom decided to continue its monetary policy calibration cycle, reducing the basic interest rate by 0.25 percentage points.
This adjustment reflects the prolonged period of restrictive interest rates, which has contributed to a slowdown in economic activity.
However, inflation expectations for 2026 and 2027, derived from the Focus survey, remain above target at 4.9% and 4.0% respectively.
The Committee noted an additional unanchoring of longer-term inflation expectations, particularly for 2028, following recent geopolitical conflicts in the Middle East.
This environment necessitates greater and more prolonged monetary restriction than previously anticipated to ensure inflation converges to the target.
Domestic activity shows mixed signals
Domestically, economic activity continues to show a moderation in growth, consistent with the Committee's expectations.
The labor market, however, remains resilient with historically low unemployment rates and real average incomes rising above productivity growth.
The Copom emphasized the need for harmonious fiscal and monetary policies, reiterating that a weakening of structural reforms and fiscal discipline could increase the neutral interest rate.
Risks to inflation, both upside and downside, remain elevated due to the ongoing geopolitical uncertainties.