Marking its first reduction in more than a year, Banco Central do Brasil on July 31 cut its benchmark Selic rate by 50 basis points to 6.00%, as it pointed to expectations for a slower economic recovery for the Latin American country.
In unanimously deciding to cut the benchmark rate, the central bank's monetary policy committee, Copom, noted that while recent economic indicators suggest Brazil's economic recovery may resume, it likely "will occur at a gradual pace." It also reiterated its expectation that the Selic rate will end 2019 at 5.50% and stay at that level through 2020.
Various measures of underlying inflation are running at "comfortable levels," including those most sensitive to the business cycle and monetary policy, it said. Copom's projections have inflation at about 3.8% for 2019 and at 3.9% for 2020.
But Copom also highlighted the continued importance of fiscal reforms to Brazil's future economic growth and inflation expectations. While the country's lower house of Congress recently passed pension reform legislation in first-round voting, it still has a number of additional votes to clear.
"The Copom recognizes progress in the process of reforms and necessary adjustments in the Brazilian economy, but emphasizes that the continuation of this process is essential for the reduction of its structural interest rate and for sustainable economic recovery," it wrote.
The monetary body also warned that "risks associated with a slowdown in global growth remain," even as major economies have changed their monetary policies. Earlier on July 31, The U.S. Federal Reserve lowered its own benchmark interest rate for the first time in a decade.
"The Committee acknowledges that the balance of risks has evolved favorably, but risk still prevails," it said.