Brazil’s central bank signaled today that it could continue cutting its benchmark lending rate to historic lows as the economy recovers more slowly than expected. Interest-rate futures yields dropped to a record low.
In the minutes to its April 17-18 meeting, the bank said that given the delayed effects of rate cuts carried out so far, any further reductions should be “conducted with parsimony.”
The bank’s board, led by President Alexandre Tombini, voted unanimously last week to cut the Selic rate by 75 basis points to 9 percent, saying a still “fragile” global economy is easing inflationary pressures. The bank has lowered the Selic by 350 basis points since August to just above the historic low of 8.75 percent in an attempt to bolster economic growth and shield the second-largest emerging market from the European debt crisis.
“If the situation remains as is, the bank will cut again by 25 basis points and hold for quite a while,” Jose Goncalves, chief economist at Banco Fator SA, said by telephone from Sao Paulo. “There are various indicators of slowness; disappointing surprises with the pace of growth.”
President Dilma Rousseff’s government has cut taxes on consumer and industrial goods and boosted low-cost loans to the state development bank, BNDES, even as the pace of inflation has remained above target for a year and a half. Brazil’s growth dropped to 2.7 percent last year from 7.5 percent in 2010, its second-weakest performance since 2003.
The yield on the futures contract due in January 2014 slid for a third day, dropping eight basis points, or 0.08 percentage point, to 8.75 percent at 9:55 a.m. in Sao Paulo, as traders boosted bets on rate cuts. It earlier touched a record low of 8.74 percent. The real depreciated 0.4 percent to 1.8869 per dollar.
The central bank sent “a clear signal of a bias toward another cut of the Selic,” said Luciano Rostagno, chief strategist at Banco WestLB do Brasil SA, in a telephone interview from Sao Paulo. “An increase in the unemployment rate, slightly above expectations, is increasing the chances of a 50 basis-point cut.”
Brazil’s jobless rate rose to 6.2 percent in March from 5.7 percent the previous month, the national statistics agency said today. The number was higher than any estimate from 36 economists surveyed by Bloomberg, whose median forecast was for a 6 percent rate.
No central banker in the world’s top 10 economies has surprised analysts as frequently as Tombini. Since taking office 15 months ago, he set interest rates lower than economists expected in three out of 10 policy meetings, including an August reduction that all 62 analysts surveyed by Bloomberg failed to anticipate. Russia’s central bank, the second most unpredictable, defied economists in three out of 14 rate decisions in the same period.
While the government has pledged growth of 4 percent to 4.5 percent this year, economists in the latest weekly central bank survey predicted expansion of 3.21 percent in 2012 and 4.25 percent in 2013.
The economic slowdown has helped ease the pace of price increases. Annual inflation as measured by the IPCA-15 index slowed to 5.25 percent in mid-April, the lowest rate since October 2010. Prices rose 6.5 percent last year.
Economists cut their forecast for 2012 consumer prices to 5.08 percent in the central bank survey, from 5.32 percent at the start of the year, as inflation slowed in line with the central bank’s predictions. Rostagno said economists will increase their 2013 inflation forecasts after today’s minutes. The bank targets inflation of 4.5 percent, plus or minus two percentage points.