Brazil cuts rate 100 bps again, lowers inflation forecast

     Brazil’s central bank cut its benchmark Selic rate by 100 basis points for the third time in a row and said a continuation of this pace of monetary easing in September would depend on how economic activity evolves, the balance of risks as well as inflation and inflation forecasts.
     The Central Bank of Brazil has now cut its rate by 500 basis points since beginning its easing campaign in October 2016 and by 450 basis points this year.
      Copom, the central bank’s monetary committee, was unanimous in its decision and lowered its assumption for the Selic policy rate to end this year at 8.0 percent from the May forecast of 8.50 percent. As in May, Copom expects the Selic rate to remain at that level until the end of 2018.
    “Inflation developments remain favorable,” the central bank said, adding disinflation is widespread and so far the short-run effects of uncertainty surrounding government reforms was neither inflationary, nor disinflationary.
     Today’s one percentage point cut in the Selic rate comes after the central bank at its previous meeting in May said a smaller cut was likely appropriate in July.
      But Copom said economic conditions were continuing to allow for the same pace of easing as in May and April despite an increase in uncertainty as far as economic reforms.
      Copom’s 2017 inflation forecast based on its weekly Focus survey dropped to 3.6 percent from May’s forecast of 4.0 percent. For 2018 Copom forecast inflation of 4.3 percent as inflation expectations dropped to 3.3 percent this year and 4.2 percent next year.
     Brazil’s inflation rate dropped to 3.0 percent in June from 3.6 percent in May for the lowest rate since April 2007 and at the lower boundary of its inflation target of 4.5 percent, plus/minus 1.5 percentage points.
     Brazil’s real has been trending firmer this year after depreciating steadily the previous six years.
     The real was trading at 3.14 to the U.S. dollar today, up 3.8 percent this year.

     The Central Bank of Brazil issued the following statement”