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Brazil central bank cuts Selic rate to 10.25%

Banco Central do Brasil's monetary policy committee, or Copom, unanimously decided May 31 to cut the Selic rate by 1 percentage point to 10.25%, citing positive momentum in the country's economic activity and inflation.

In reducing the rate, the central bank committee noted that economic activity indicators point to the Brazilian economy's stabilization in the short run and a gradual recovery for the rest of the year.

Meanwhile, inflation developments remain favorable, the Copom said, noting that inflation expected for 2017 collected by the Focus survey declined to about 4.0%. The committee's inflation projection for 2017 and 2018 of about 4.0% and 4.6%, respectively, "assumes a path for the policy interest rate that ends 2017 at 8.5% and remains at that level until the end of 2018."

The Copom added, however, that its inflation forecasts already account for "a higher level of uncertainty," due to possible roadblocks on the passing of reforms and adjustments in the Brazilian economy in light of the country's widespread corruption scandal.

Under these conditions, the central bank said "the Copom judges that a moderate reduction of the pace of monetary easing relative to the pace adopted today is likely to be appropriate at its next meeting."