Brazil's central bank on Wednesday cut interest rates by 25 basis points at a fourth straight policy meeting as expected and left the door open for more cuts, as recent data pointed to slower inflation and a cooling economy.
The bank's rate-setting committee, called Copom, unanimously decided to cut the benchmark Selic rate to 14.00%, taking borrowing costs to their lowest level since March 2025, as expected by 38 of 42 analysts polled by Reuters.
The decision extends a rate-cutting cycle started in March, as signs of slowing growth give policymakers more confidence they are taming inflation, a lingering liability for President Luiz Inacio Lula da Silva as he runs for re-election in October.
Still, the central bank stopped short of signaling its next move, making clear that it will depend on incoming economic data ahead of a September policy meeting.
"The Committee will continue to monitor developments in the scenario in order to keep monetary policy adequately restrictive to ensure convergence to the inflation target," Copom wrote in its policy statement.
NO COMMITMENT
That new line in the statement reinforced the view of Santander Brasil economist Marco Antonio Caruso that the focus of policymakers is shifting from extending rate cuts to finding the right moment to stop.
"The statement continues to leave the door open for another rate cut, but offers no commitment in that direction," he said.
Quantitas chief economist Ivo Chermont said policymakers appeared slightly more hawkish, emphasizing a tight labor market and resilient economy despite slowing activity.
"The message is that the scenario has improved, but it is too early to declare victory," Chermont said. He added that he expects a rate cut of the same size in September, but traders may now scale back bets on another reduction in November.
The central bank said its inflation risk balance remains tilted to the upside, a message that had appeared only in the minutes of its previous meeting.
It also stressed concern over the continued de-anchoring of longer-term inflation expectations, saying it was "closely monitoring" a trend that affects price-setting behavior and makes disinflation more costly.
BETTER BACKDROP
At its June meeting, policymakers drew scrutiny by placing greater emphasis on inflation projections beyond their formal policy horizon in order to explain further easing even as their balance of risks deteriorated.
Since then, however, the backdrop has become more favorable for further rate cuts. Inflation has run below expectations, while economic activity indicators have pointed to a clearer loss of momentum, reinforcing expectations of a more benign outlook.
Attention now turns to whether the easing cycle will extend into September, with the central bank refraining from clear forward guidance and showing little change in its inflation projections.
It forecast annual inflation of 3.2% over its relevant 18-month policy horizon, which has now shifted to the first quarter of 2028, in line with 3.2% in its June estimates.
Brazil's official inflation target is 3%, with a tolerance band of 1.5 percentage points on either side.
For 2026, the central bank lowered its inflation forecast to 5.1% from 5.2% in June. Its projection for 2027 was revised to 3.8% from 3.7%.
