The Central Bank of Brazil, which has now cut its rate by 50 basis points following last month's cut - the bank's first rate cut since August 2012 - added the policy decision was unanimous by the members of its Copom committee and no bias was indicated.
In its guidance, the central bank also said the pace of disinflation may intensify if the country's economic recovery is delayed further and is more gradual than anticipated.
"The Committee judges that convergence of inflation to the 4.5% target over the relevant horizon for the conduct of monetary policy, which includes 2017 and 2018, is compatible with a gradual easing of monetary conditions," the central bank said.
Brazil's inflation rate fell to 7.87 percent in October from 8.48 percent in September to the lowest rate since February 2015, with the central bank saying the drop was better than expected and partly due to lower food prices but also signs of more widespread disinflation.
The central bank said 2016 inflation forecasts in the reference and market scenarios had dropped to around 6.6 percent from around 7 percent seen last month.
Forecasts for 2017 show inflation around 4.4 percent and 4.7 percent, respectively, while
forecasts for 2018 for the two scenarios were around 3.6 percent and 4.6 percent, respectively.
Brazil's economy shrank by 0.8 percent in the third quarter from the second quarter for the seventh quarter of contraction in a row. On an annual basis, Gross Domestic Product shrank by 2.9 percent compared with a decline of 3.6 percent in the second quarter.
"The set of indicators released since the last Copom meeting suggests weaker-than-expected economic activity in the short run," the central bank said, adding forecast for growth this year and next year had been revised downward.
The exchange rate of Brazil's real fell from August 2014 until it hit a record low of around 4.15 to the U.S. dollar in January this year. The real then firmed to around 3.12 in late October before again weakening in the last six weeks.
The real was trading at 3.39 to the dollar today, still almost 17 percent higher than at the start of this year.
The Central Bank of Brazil issued the following statement: