October 22, 2019 / 12:49 PM / 23 days ago

UPDATE 1-Brazil mid-month October inflation lowest in 21 years

(Adds detail, context)

By Jamie McGeever

BRASILIA, Oct 22 (Reuters) - A measure of Brazilian inflation this month fell to its lowest in over 20 years, figures on Tuesday showed, cementing the view that the central bank will cut interest rates to a fresh all-time low next week and probably again before the year is out.

Consumer prices rose 0.09% from mid-September to mid-October, marking the weakest rate of this particular measure of monthly inflation for any month of October since 1998, according to government statistics agency IBGE.

The near imperceptible rate of monthly inflation helped push the annual rate of inflation down to 2.72%, below 3.0% for the first time since May last year and further below the central bank’s official year-end 2019 target of 4.0%.

The monthly and annual inflation rates were slightly higher than the median estimates in a Reuters poll of economists of 0.04% and 2.67%, respectively, but will do nothing to alter the expected path for monetary policy in the months ahead.

The bank’s rate-setting committee known as ‘Copom’ meets next week and is widely expected to lower its benchmark Selic rate again, probably by another 50 basis points to a new low of 5.00%.

“The fall in Brazilian inflation to 2.7% in the middle of October, one of its lowest rates on record, means policymakers will ... almost certainly cut the Selic rate by 50bp when they meets later this month,” wrote William Jackson, chief emerging markets economist at Capital Economics in a note to clients.

The central bank’s latest weekly ‘FOCUS’ survey of around 100 financial institutions published on Monday showed that economists expect the Selic rate to be cut to 4.50% by the end of this year, down from 4.75% the week before.

Central bank president Roberto Campos Neto last week repeated his view that the recent weakening of the currency, the real, has not spurred inflation and that there was room for further reduction in interest rates.

According to IBGE figures on Tuesday, healthcare costs rose 0.85% on the month to mid-October and transport costs rose 0.35%, while the biggest declines were 0.25% in food and drink, and 0.23% in housing.

Year-to-date annual inflation in mid-October was 2.69%, IBGE said.

Reporting by Jamie McGeever Editing by Chizu Nomiyama

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