By Paulo Trevisani and Jeffrey T. Lewis
SÃO PAULO -- Brazil's central bank intensified the pace of its rate cuts Wednesday, as price increases continued to lose steam amid a fierce recession.
The bank's monetary committee, known as the Copom, cut the benchmark Selic rate to 13% from 13.75%, a larger cut than most economists expected. The bank's two previous rate cuts in this easing cycle were a quarter point each.
In a survey of 12 economists last week by The Wall Street Journal, nine forecast a half-point cut and the other three said they expected a 0.75-point reduction.
The bank began its easing cycle with two quarter-point cuts, one each in October and November.
In the postmeeting statement Wednesday, the bank said inflation is slowing more quickly than expected, a change that is "compatible" with faster monetary easing.
The bank also said that economic activity has been weaker than expected, and that the country's economic recovery could be delayed even more. The bank's statement nevertheless provided little guidance about upcoming rate decisions, said Ignácio Crespo, an economist at the Guide Investimentos brokerage firm.
"The bank left all options open for the next meeting," he said, adding that his team is revising its previous call for a half-point cut on Feb. 22. "Maybe the easing will be more intense and shorter" than previously thought, he said.
Mr. Crespo also said the bank showed less concern about external factors in Wednesday's statement, a change after earlier statements that referenced U.S. economic policy under incoming President Donald Trump.
The faster pace of easing comes as the inflation rate has moved closer to the central bank's 4.5% target. Consumer-price increases reached a 12-year peak of 10.7% last January before entering a gradual downward path.
Brazil's benchmark inflation measure, the IPCA, rose 6.29% during 2016, the country's statistics agency said earlier Wednesday. That left the measure within the central bank's tolerance range of two percentage points in either direction of 4.5% last year.
The tolerance range has been reduced to 1.5 percentage points starting this year. Economists surveyed by the central bank forecast inflation will end 2017 at 4.8%, which would be the lowest annual reading since September 2010.
Prices are weakening after two years of economic contraction, in the worst recession Brazil has experienced since at least the Great Depression. Gross domestic product is estimated to have contracted 3.5% in 2016, following a 3.8% shrinkage in 2015.
Rate cuts could help jump-start the economy, but not in the short term, said Jason Vieira, an economist from investment company Infinity Asset Management.
"Families and businesses still have high debt levels that will keep them from spending for the time being," he said, adding that relief in interest rates could help spur new spending down the road. Mr. Vieira forecasts 0.5% GDP growth this year, in line with many other economists' forecasts.
The combination of slowing inflation and weak growth is at the core of the central bank's monetary-policy decisions, said Rogerio Mori, an economist at the Getúlio Vargas foundation in São Paulo.
"That rates are going down, that's a given," he said. "But the intensity and length [of the easing] will be determined by how fast inflation falls and how long activity takes to recover."
The incoming Trump administration is also a source of uncertainty that could alter the pace of rate-cutting in Brazil, according to Infinity'sMr. Vieira. New policies from Mr. Trump could lead to faster rate increases by the Fed, which could strengthen the dollar, he said.
"But it's still a big question mark. Nothing is very clear at this point, " he said.
Write to Paulo Trevisani at firstname.lastname@example.org and Jeffrey T. Lewis at email@example.com
(END) Dow Jones Newswires
January 11, 2017 16:38 ET (21:38 GMT)
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