Brazil's central bank hinted on Thursday it could continue a moderate pace of interest rate cuts in coming months as risks to global financial stability have increased and inflation slows. In minutes from last week's policy meeting, released on Thursday, the central bank's monetary policy committee said that above-target inflation had peaked in the third quarter and will now slow.
The committee, known as Copom, also said that, given a more restrictive global environment, "moderate adjustments in interest rates are consistent with bringing inflation to target in 2012." Policymakers on October 19 cut the benchmark Selic lending rate to 11.5 percent from 12 percent, following on a similarly-sized cut on August 31 from 12.5 percent. After both meetings, the bank pointed to a gloomy economic outlook abroad - including an ongoing euro zone sovereign debt crisis and a fragile US recovery - to explain the loosening.
The August rate cut surprised markets, abruptly ending a cycle of interest rate hikes and exposed central bank chief Alexandre Tombini to criticism. At the time, many economists said the move was too risky given 12-month inflation above a 6.5 percent target ceiling since April.
But by last week, a number of economists had begun changing their minds. With Greece edging closer to becoming the first sovereign default in the 17-nation monetary union and fears of contagion to Spain and Italy, global markets have come under a distinct pall. In addition, slowing inflation to mid-October in Brazil has bolstered the central bank's view that increases in the IPCA price index could fall back into the target range of 4.5 percent, plus or minus 2 percentage points, by year-end. Even after a full point of cuts, though, the Selic remains the highest such rate among major economies.
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