3 Min Read
(Adds analyst comments, interest rate futures pricing)
By Bruno Federowski
SAO PAULO, March 2 (Reuters) - Brazil's central bank could accelerate interest rate cuts depending on inflation expectations and economic data, minutes from last month's policy meeting showed on Thursday, keeping views divided on the size of a widely anticipated cut in April.
The extent of the monetary loosening cycle will also hinge on estimates of the structural interest rate, the minutes said, referring to the rate that by itself neither stimulates nor slows inflation.
Following last week's decision, when it cut the benchmark Selic rate by 75 basis points to 12.25 percent, the bank said estimates of the structural interest rate depend on factors including productivity growth, the outlook for fiscal policy and the business environment.
"The approval and implementation of fiscal reforms, notably pension reform as well as other reforms and necessary adjustments to the economy, may lower the structural interest rate," the bank said in its minutes on Thursday.
A rapid drop in inflation and weaker-than-expected economic activity data have fueled expectations that the bank could increase the magnitude of a rate cut in April to 100 basis points, following 75 bps cuts both in January and February.
Yields on Brazilian rate futures were little changed on Thursday morning, with traders' bets split between a rate cut of 75 bps and 100 bps.
Rate future yields were consistent with a total of 300 basis points of further cuts, bringing the Selic rate to 9.25 percent by the end of the year, traders said.
The bank said members of its monetary policy-setting committee, known as the Copom, preferred to keep options open for their April 11-12 meeting. It said a decision to speed up rate cuts must not threaten to drive inflation expectations away from the bank's annual 4.5 percent target.
"At this juncture we expect another 75bp rate cut at the April meeting, with the probability of a larger 100bp rate cut continuing to rise given further improvement in inflation expectations and a continually deteriorating labor market," Goldman Sachs economist Alberto Ramos wrote in a note to clients.
A central bank survey of economists put the median forecast for the official inflation rate this year at 4.36 percent, below the mid-point of the target band. The survey predicted inflation would accelerate in 2018 to 4.50 percent. (Editing by W Simon and Bernadette Baum)