Brazil registered its lowest annual inflation rate in February since 2000, as the benchmark IPCA consumer price index increased 2.84% in the 12 months through February. As a result, the central bank’s nine-member monetary policy committee, Copom, cut the benchmark Selic rate by 25 basis points to 6.50%. Copom has cut the key interest rate by 7.75% since it started the easing cycle in October 2016.

More to the Headlines

The interest rate cut was widely expected by economists, as low inflation concerns continue to perturb the Latin American nation. The ongoing inflation trend is an extraordinary shift from two years ago, when rising consumer prices were bothering the policymakers. For instance, annual inflation in the 12 months through January 2016 stood at 10.7%.

However, multiple analysts had expected the central bank to stop its easing cycle after yesterday’s cut. Interest rate futures had predicted a similar action. However, policymakers held a different view, as they forecast another rate cut in the committee’s March meeting owing to inflation struggles.

“Regarding the next meeting, at this time the Copom views an additional moderate monetary easing as appropriate,” the central bank’s policy statement stated. “The Committee judges that this additional stimulus mitigates the risk of delayed convergence of inflation toward the targets.”

Economic Situation and Risks

Brazil’s GDP advanced 0.1% sequentially in the fourth quarter of 2017 compared with a Reuters estimate of 0.4%. On a year-over-year basis, it increased 2.1% compared with an estimate of 2.5%. However, the economy grew 1% in 2017 compared with a contraction of 3.5% in 2015 and 2016. “Growth is taking shape. It is more widely spread among economic sectors and that improves its quality,” per a Reuters article citing Roberto Padovani, chief economist at brokerage Votorantim.

The jobless rate in Brazil stood at 12.2% in the three months to January 2018, above analyst expectations of 12%. High unemployment rates and poor economic fundamentals have kept the Brazilian economy from registering a rise in prices, as it battles its way out of the deepest recession in decades. Adding to the agony, President Donald Trump’s stance on trade and tariffs might negatively impact the emerging market nation.

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