Brazil Central Bank Slows Monetary Easing Due to Uncertainty, Splits on Rate Cut Size

The Brazilian central bank decreased its main interest rate by 0.25 percentage points to 10.5% during its most recent decision, marking a slower pace of monetary easing due to economic and fiscal uncertainties. This was the first split decision, with four of the nine board members favoring a larger cut of 0.5%. Policymakers emphasized that monetary policy should continue contracting until the disinflation process and expectation anchoring are solidified. The committee stated that the magnitude and duration of future interest rate adjustments will depend on the persistent commitment to achieving the inflation target within the relevant horizon. Inflation fell to 3.77% in mid-April, with service costs experiencing lesser increases than previously recorded. However, policymakers expressed concern regarding potential price pressures resulting from a robust job market. The government recently announced that it will strive for a balanced primary budget rather than a surplus in 2025, which has heightened spending concerns amongst investors. Political tensions may resurface as President Luiz Inacio Lula da Silva prompts his administration for measures to strengthen the economy while some allies persistently criticize the central bank’s president, Roberto Campos Neto, for not lowering interest rates rapidly enough.