Brazil's FM Haddad Hinted At Rate Cuts Higher Than 25 Bps
Fernando Haddad (Finance Minister of Brazil) recently made comments that the central bank may announce rate cuts of more than 25 bps during August's meeting.
In an interview given to a media outlet, Haddad talked about how everyone (the market & the economists) is expecting a rate cut by Brazil's central bank. He added that the hot topic is no longer about the possibility of a rate cut. Instead, the market is now talking about the size of the rate cut at the upcoming central bank meeting.
Brazil's Interest Rate Is 13.75%
Since the start of 2021, the central bank of Brazil has been on an aggressive tightening cycle. This has pushed the interest rate in Brazil to 13.75%, which is a record on its own. All of this was done by Brazil's central bank to tame the high inflation.
Now that the annual inflation in Brazil is at a 3-year low and within the range set by the central bank, the chances of a rate cut have increased tremendously. Now, economists are trying to figure out the size of the rate hike, and it appears that Brazil's finance minister has offered some hints.
Recently, a poll was also conducted, which revealed that the chances of rate cuts at the August meeting now stand at 92%. This also means that there's an eight chance of no rate cut, which could mean inaction or even a rate hike.
But given the market's perception and even Brazil's authorities talking about a rate cut, it is now a done deal! Looking ahead, the cycle of monetary easing will also likely take several years as abrupt changes to the policy rate may lead to unexpected challenges.
As per the results from the poll, up to 32% of the respondents are expecting a 50 bps rate cut, while 55% believe that a 25 bps rate cut will occur at the August meeting.