The Brazilian central bank (BCB) is expected to slash its benchmark Selic rate at the monetary policy meeting scheduled to be held on November 29-30, following a gradual easing of inflationary pressures in the recent past.

The BCB is likely to undertake 25 basis points rate cut at next week’s policy meet in Copom, following the 25bps cut in October, the first easing seen in four years, with the Selic rate reduced to 14.00 percent following a 700bps tightening cycle comprising sixteen hikes that began in April 2013.

Further, a gradual rate of declining inflation, will also allow for an easing mode. The recent October CPI data showed further deceleration with a headline IPCA reading of 0.26 percent m/m, 7.87 percent y/y, the lowest m/m rise for October since 2000 and the lowest y/y rate since February 2015. The data showed food and drink prices decreasing again in m/m terms in October (–0.05 percent m/m).

The moderation in headline inflation has been due to the continuous appreciation of the Brazilian Real. However, inflation expectations have been declining, with end-2017 anticipations converging towards 4.5 percent target.

The minutes of the last Copom-held monetary policy meeting indicated that decreasing price pressures, coupled with fiscal consolidation will further decide the path of interest-rate policy. Meanwhile, BCB Governor Goldfajn pointed out that the next series of rate cuts will primarily depend on a combination of key variables, such as food price shocks fading and the disinflationary impact of the contraction in activity.