Brazil central bank delivers fifth straight rate cut, leaves next move open

By Marcela Ayres

BRASILIA, Sept 16 (Reuters) - Brazil's ‌central bank on ​Wednesday cut ​interest rates by 25 basis points for a fifth straight meeting amid firmer signs of an economic slowdown while keeping its options open ahead of next month's presidential election.

The ‌central bank's rate-setting committee, Copom, unanimously lowered the Selic rate to 13.75%, in line ⁠with the expectations of 48 of 51 economists polled by Reuters. The remaining three had forecast no change.

"The total magnitude of ‌the calibration cycle will be established ‌in light of new information aiming to ensure inflation convergence to the target," the central bank reaffirmed in a policy statement that showed only minor changes from the previous meeting.

The decision came on ​the same day that the U.S. Federal Reserve raised its benchmark interest rate to the 3.75%-4.00% range and flagged further increases in coming months.

It extends a cautious easing cycle launched in March that ⁠has delivered just 125 basis points of rate cuts so far, still leaving Brazil with one of the highest real interest rates among ​major economies.

Investors are now looking to Copom's next meeting in early November, just days after what is expected to be a closely contested election runoff between leftist ​President Luiz Inacio Lula da Silva, who is seeking ‌re-election, and Senator Flavio Bolsonaro, son of former President Jair Bolsonaro.

"If economic activity continues to moderate, recent inflation trends remain favorable and election-related uncertainty does not lead ⁠to higher inflation forecasts over the relevant policy horizon, the most likely outcome remains the continuation of the easing cycle with 25-basis-point cuts at each meeting," ASA Investments said in a note to clients.

Since the bank's latest meeting, economic ⁠data have pointed to a clearer loss of momentum in Latin America's largest economy. Second-quarter gross domestic product data showed ​a slowdown, while household consumption contracted.

Policymakers said in the statement that fresh indicators suggest a gradual moderation of economic activity, particularly in more cyclical sectors, albeit at a resilient level.

Inflation has also eased, although the labor market remains tight.

At the ‌same time, rising oil prices have re-emerged as a concern amid renewed conflict in the Middle East, while market inflation expectations for next year have edged ‌higher, moving further away from the official 3% target.

Against that backdrop, the central bank nudged up its inflation forecasts ⁠to 5.2% for 2026 and 3.9% for ‌2027, from 5.1% and 3.8%, ​respectively.

However, its projection for inflation over the relevant 18-month policy horizon through the first quarter of 2028 remained unchanged at 3.2%.

(Reporting by Marcela Ayres; Editing by Isabel Teles and ‌Sonali Paul)

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