BRASILIA Reuters - Brazil's central bank highlighted on Tuesday the lack of consensus among policymakers for its decision to pause an aggressive monetary policy cycle, noting that a further residual interest rate hike was widely debated. In the minutes of its Sept. 20 -- 21 meeting, policymakers reinforced their cautious stance in the fight against inflation, even with more recent data showing an easing of price pressures due to cuts by the government to fuel and energy taxes.
The decision to leave the benchmark Selic interest rate at 13.75% after 12 consecutive hikes came in a vote of 7 -- to- 2, the first split decision since March 2016 with dissenters voting for a final 25 basis-point hike.
The minutes said that the additional interest rate increase would reinforce the vigilance stance and reflect the observation of a stronger than expected activity.
The need to evaluate the cumulative effects of the intense and timely monetary policy cycle over time would favor the maintenance. In March 2021 the Selic rate was at a record low 2%, and most Copom members concluded that rates were already in very contractionary territory, with data and inflation expectations supporting the end of the tightening cycle.
If the central bank did not turn out as expected, it could resume hiking, if it didn't turn out as expected.
The hawkish tone was seen as policymakers tried to undo market bets on monetary easing from as soon as early 2023 on the back of inflation in Latin America's largest economy.
Consumer prices fell to 7.96% in the 12 months to September, after running into 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, said Banco Bradesco, a note to clients.
The Director of Research and Economic Studies Fernando Barbosa said that the tightening cycle is over and the cuts should only take place in the middle of next year.