BRASILIA (Reuters) – Brazil’s central bank on Tuesday highlighted the lack of consensus among policymakers on its decision last week to pause a violent monetary policy cycle, noting that a “remaining” interest rate hike “was widely discussed”.
In the minutes of the September 20-21 meeting, policy makers reinforced their cautious stance on fighting inflation, even with more recent data showing an easing of price pressures after the government’s cuts to taxes on fuel and energy.
The decision to leave the Selic benchmark rate at 13.75% came after 12 consecutive increases in a 7-to-2 vote, the first split decision since March 2016, with opponents voting for a final 25 basis point hike.
“On the other hand, the additional interest rate increase will reinforce the position of vigilance and reflect the observation of stronger than expected activity,” the minutes stressed.
“On the other hand, caution and the need to assess, over time, the cumulative effects to be taken into account of the timely and intense monetary policy cycle that has already been taken will be in the interests of maintenance.”
Most Copom members concluded that rates were already in significantly deflationary territory, as data and inflation expectations support the end of the tightening cycle that lifted Selic’s rate from a record low of 2% in March 2021.
But the central bank reiterated that it may resume the rise if the inflation rate does not go as expected.
The hawkish tone was seen as policymakers attempted to roll back market bets on monetary easing from early 2023 as inflation eased in Latin America’s largest economy.
Consumer prices in the 12 months to mid-September slowed to 7.96%, having topped the double digits from September 2021 to July.
The central bank indicated in the minutes that it will be less sensitive to the lower levels it expects to see in the inflation index, Banco Bradesco said in a note to clients.
“We maintain our scenario that the tightening cycle is over and that cuts should only take place from the middle of next year,” wrote Director of Research and Economic Studies Fernando Barbosa.