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The Brazilian central bank (BCB) is expected to once again cut its key SELIC rate by 100 basis points (bps) at the monetary policy meeting scheduled to be held tonight. How much further it intends to cut interest rates in the future will remain a key concern for market participants today.
Since October 2016 interest rates have fallen by 500 bps, at the same time inflation has also been in free fall. In July it was down to 2.7 percent and is likely to have eased a little further in August (data is scheduled to be published today). As a result, inflation is now below the central bank’s target corridor of 3-6 percent and provides it with scope for further monetary policy easing.
The sluggish economic recovery is another reason why the central bank wants to pursue a more expansionary monetary policy. However, what matters most today is not the rate decision but the statement which is likely to provide references to the next (few) rate step(s).
"Following 100 bps today we only expect 75 bps at the next meeting in October, followed by a break," Commerzbank commented in its latest research report.
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