BRASILIA (Reuters) - Discussions on more modest interest rate cuts in the future emerged within Brazil's central bank rate-setting committee, the bank said on Tuesday, citing the risk of heightened uncertainty domestically and internationally.
In the minutes of the meeting on March 19-20, when the bank cut the benchmark interest rate by 50 basis points to 10.75%, the central bank said that "information provided by updating the analyzed data sets will be particularly important in defining the terminal interest rate and its respective path".
"Some members also argued that if prospective uncertainty remains high in the future, a slower pace of monetary easing may prove appropriate, for whatever terminal rate is desired," it added.
The minutes came on the same day as the most recent inflation reading, which reached 4.14% over the 12 months to mid-March, slightly above market estimates.
Nicolas Borsoi, chief economist at Nova Futura Investimentos, stressed that the inflation breakdown also shows the acceleration of underlying services on a three-month annualized average.
"Along with the message from the minutes ... it's not possible to rule out a 50 basis-point cut in June, but it's another argument in the direction that the central may have to reduce the pace of cuts," said Borsoi.
In its decision statement last week, the central bank had already shortened its forward guidance, indicating the maintenance of the same pace of reductions for only one meeting ahead, should the expected scenario persist.
This suggested that beyond the next meeting in May, the course of easing may be changed, contrasting with the signaling since the rate-cut cycle began in August, of same-size cuts for the upcoming "meetings", in the plural.
Since reducing interest rates from a six-year high of 13.75% kept steady for almost a year to tame inflation, policymakers have reduced borrowing costs by 300 basis points, consistently with 50 basis-point cuts at each meeting.
In the minutes, the central bank said it unanimously concluded that the heightened uncertainty diminished the benefits of future signaling and increased its costs.
"It would be a mistake to interpret the change in future signaling as an indication of a change in the monetary policy cycle compatible with the baseline scenario," it added.
Policymakers see uncertainties regarding the international disinflationary scenario due to the strength of activity in the United States and its impact on global financial conditions.
They also emphasized that while there is benign price behavior in food and industrial goods in Brazil, doubts arise about the speed of disinflation in services due to resilient activity.
"A slower disinflationary process, both domestically and globally, does not constitute the baseline scenario but has been incorporated as a source of uncertainty. This increased uncertainty recommends caution in the conduct of monetary policy."