The Central Bank of Brazil, which has now cut its rate by 125 basis points since October last year when it began its easing cycle, added further rate cuts and possible changes to the pace of easing would continue to depend on inflation forecasts and expectations.
The central bank's monetary policy committee, known as Copom, said it had considered cutting the rate by 50 basis points today and then signaling a larger cut at the following meeting but decided to cut the rate by 75 points as inflation expectations were anchored, the drop in inflation was faster than expected and the economy weaker than expected.
Brazil's headline inflation rate declined to 7.87 percent in December from 8.48 percent in November for the lowest rate since April 2014 while surveys showed that inflation expectations for 2017 fell to around 4.8 percent while they steady at 4.5 percent for 2018.
The National Consumer Price Index, known as IPCA, eased to 6.3 percent end-2016, the central bank said, within its inflation tolerance range of 4.5 percent, plus/minus 2 percentage points.
The central bank added that its own forecasts were lowered to around 4.0 percent for 2017 and 3.4 percent for 2018 from the latest inflation report which forecast 4.4 percent inflation and 3.6 percent inflation.
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 2016. The real then firmed to around 3.12 in late October before again weakening until December.
Since then the real has been firming and was trading at 3.197to the dollar today, up almost 24 percent since the start of 2016.
The Central Bank of Brazil issued the following statement