By Marcela Ayres
BRASILIA, Feb 3 (Reuters) – Brazil’s central bank signaled on Tuesday it will begin cutting interest rates in March, but stressed borrowing costs must remain restrictive and that the size and duration of the easing cycle will be set over time, in line with incoming data.
In minutes from its latest policy meeting, where it kept the benchmark Selic rate at 15% for the fifth consecutive time, the bank said improving current inflation and market expectations “less distant” from the 3% target offered clearer evidence that monetary policy is transmitting as expected.
That, it said, allowed policymakers to signal the start of an easing cycle at their next meeting.
“At the same time, the committee unanimously reaffirms the need to maintain interest rates at restrictive levels until not only the disinflation process is consolidated but also expectations are anchored to the target,” the minutes said.
The bank mentioned the resilience of factors pressuring both current and expected prices, particularly the dynamism in the labor market.
Economists surveyed weekly by the central bank most recently projected inflation at 3.99% this year, 3.80% in 2027, and 3.50% in both 2028 and 2029.
The bank reiterated that the pace and length of rate cuts will depend on new data, saying such an approach is consistent with the current environment, in which mixed signals on the slowdown in economic activity and its effect on prices continue to blur clear trend-setting.
The message comes amid split market bets over whether the easing cycle will begin with a 25- or 50-basis-point cut.
The central bank halted in July an aggressive tightening cycle that had added 450 basis points to the benchmark rate, holding it steady since then as it sought to cool activity in Latin America’s largest economy.
That cooling has been slow to materialize amid government stimulus under President Luiz Inacio Lula da Silva.
(Reporting by Marcela Ayres; Editing by Gabriel Araujo)
