Brazil's Copom cuts Selic to 10.50% in 5-4 vote as minority backs larger cut

The Monetary Policy Committee (Copom) of the Central Bank of Brazil cut the Selic benchmark rate by 25 basis points to 10.50% on 8 May 2024, slowing the pace of easing in a 5-4 vote in which the four dissenting members favoured a larger 50-basis-point reduction.

Governor Roberto Campos Neto, Carolina de Assis Barros, Diogo Guillen, Otávio Damaso and Renato Gomes voted for the 25-basis-point cut. Ailton de Aquino Santos, Gabriel Galípolo, Paulo Picchetti and Rodrigo Teixeira voted for a cut of 50 basis points.

SMALLER STEP, NO GUIDANCE

At its previous meeting in March, when it cut the Selic by 50 basis points to 10.75%, the committee had unanimously signalled a reduction of the same magnitude at its next meeting if its expected scenario was confirmed. The May decision departed from that guidance, and the statement did not signal the size of future moves, saying instead that the extent and adequacy of future adjustments would be dictated by a firm commitment to bringing inflation to target.

The committee unanimously assessed that the uncertain global environment and a domestic scenario marked by resilient activity and unanchored inflation expectations demanded greater caution, and said monetary policy should remain contractionary until both disinflation and the anchoring of expectations around the targets were consolidated.

OUTLOOK

The Copom said the external environment had become more adverse because of persistent uncertainty over the start of monetary easing in the United States, while domestic activity and labour market indicators had been more dynamic than expected. Market inflation expectations for 2024 and 2025 stood at around 3.7% and 3.6% respectively, while the committee's own reference-scenario projections were 3.8% for 2024 and 3.3% for 2025.

The split matched the 5-4 vote at the first cut of the cycle in August 2023 and ended a run of unanimous decisions at the meetings in between.