Brazil's central bank expected to announce interest rate cut

Brazil's central bank is expected to announce a 50-basis point cut to the benchmark Selic interest on Wednesday in its final decision of the year ahead of what looks to be an uncertain scenario in 2024.

The monetary authority is forecast to reduce the interest to 11.75% from the current 12.25%. 

The monetary authority started lowering the base rate in August, when the Selic was at 13.75% and it has already made three consecutive 50-basis point cuts as inflation has slowed in recent months.

Brazil's official consumer price index (IPCA) for the 12 months to mid-November reached 4.84%, down from 5.05% a year ago, bringing it close to the central bank's tolerance range of between 1.75% and 4.75% for the year.

Next year, the central bank is targeting inflation of between 1.50% and 4.50%, but control of inflation could face some risks as some government figures attempt to increase public spending to boost the economy.

"Next year we will see greater debate between the more ideological wings of the government, which are advocating an increase in public spending in an effort to boost the economy, and the more technical wing of the government, represented by the finance ministry, which advocates more control of public spending," Luciano Rostagno, chief Latin America strategist at Banco Mizuho, told BNamericas.

This year, the economy is expected to grow 2.92% but only 1.51% next year, according to the bank's latest weekly survey of 100 economists.

"My estimate is that the end of the interest rate reduction cycle will occur with the Selic reaching 9.5% in July 2024, but there is a risk that this scenario may not materialize, with the Selic rate remaining at a higher level if the pressure for increased public spending prevails, as this would exert pressure on inflation," Rostagno said.