Key facts
- Brazil's central bank cut its benchmark Selic rate by 25 basis points to 13.75%.
- This is the fifth consecutive rate reduction by the central bank.
- Brazil's economic activity fell 0.2% in July, exceeding the expected 0.1% contraction.
- The agricultural sector declined 1.2% in July, impacting economic activity.
- Industry fell 0.4%, while services remained flat in July.
- On a year-on-year basis, Brazil's economic activity index rose 1.1% in July.
Brazil's central bank on Wednesday cut its benchmark interest rate by 25 basis points to 13.75%, delivering a fifth consecutive reduction as signs of an economic slowdown strengthened. The decision by the rate-setting committee, Copom, was unanimous and in line with expectations from most economists polled by Reuters.
This move comes as Brazil's economic activity unexpectedly contracted by 0.2% in July from the previous month, missing economists' expectations for a 0.1% drop. This marks the second consecutive month of contraction, following a revised 0.9% decline in June, indicating that elevated borrowing costs continue to cool the economy.
"The growth data increasingly argue for lower rates; the inflation backdrop argues for getting there gradually," said Andres Abadia, Pantheon Macroeconomics' chief Latin America economist.
The central bank's IBC-Br index, a proxy for gross domestic product, showed that the agricultural sector was the main drag in July, posting a 1.2% decline. Industry fell 0.4%, while services, the backbone of Brazil's economy, were flat. On a year-on-year basis, the index was up 1.1% in July.