BRASILIA (Reuters) - Brazil’s central bank cut interest rates on Wednesday despite a political crisis threatening government efforts to plug a widening fiscal gap that plunged the country into recession.
The bank’s nine-member monetary policy committee, known as Copom, cut its benchmark Selic rate BRCBMP=ECI by 100 basis points for the second straight meeting to 10.25 percent. It was the lowest the Selic has been in more than three years.
“It was a hawkish rate cut. The bank is not comfortable with the current easing pace for the next meeting and it signaled that the ending point, which market sees at 8.5 percent, is beginning to look a bit stretched.”
NEIL SHEARING, CHIEF EMERGING MARKETS ECONOMIST, CAPITAL ECONOMICS:
”Copom doesn’t meet again until 26th July, by which point the political landscape could have shifted dramatically.
If the political crisis ultimately triggers major market dislocation, it’s clear that Copom will move in much smaller steps or even shelve further easing altogether.”
“The central bank signaled a slower pace of rate cuts ahead, consistent with a 75-basis-point reduction at the next meeting ... For the long run, there is plenty of room to bring interest rates to 8.5 percent or even less, even in a scenario of greater uncertainty over the approval of reforms.”
JANKIEL SANTOS, CHIEF BRAZIL ECONOMIST, HAITONG SECURITIES:
“Political uncertainties are limiting the extension of the easing cycle somewhat, so the end is closer. The central bank signaled it would cut interest rates by 75 basis points at its next meeting. I expect the Selic rate to reach 9 percent - the forecast has been unchanged since before the crisis.”
Reporting by Brazil bureau; Editing by James Dalgleish and Andrew Hay