Brazil's central bank lowered its benchmark Selic rate by another 75 basis points to 12.25 percent and reiterated its guidance that further rate cuts and possible changes to the pace of easing will continue to depend on the forecast and expectations for inflation.
The Central Bank of Brazil has now cut its rate by 200 basis points since embarking on an easing cycle in October last year and by 150 points this year alone following January's larger-than-expected 75-point rate cut due to decelerating inflation and a slowing economy.
The central bank's monetary policy committee, known as Copom, was unanimous in its decision, which was without bias, and said it expected inflation to ease to around 4.2 percent this year and around 4.5 percent for 2017 based on cutting the key rate to 9.5 percent by the end of this year and 9.0 percent by the end of 2018.
Fresh economic data also show signals that are consistent with a stabilization of the economy and a gradual recovery of activity during this year while inflation is expected to continue to decelerate as inflation expectations for this year fell to around 4.4 percent.
Brazil's inflation rate fell further to 5.35 percent in January from 6.29 percent in December, well within the central bank's 2.5-6.5 percent tolerance range, and sharply lower than 2015's inflation rate of 10.67 percent and below 2014's 6.41 percent.
For 2017 and 2018 the tolerance range has been narrowed to 1.5 percentage points but around the same midpoint of 4.50 percent. In June the government is expected to reduce the midpoint target slightly with most economists looking at a new target for 2019 of 4.25 percent.
However, that would still remain above most other countries, including those in South America, where Chile and Colombia target 3 percent, like most emerging market economies, whereas Peru targets 2 percent, a level that is typically found in developed economies.
Brazil's economy shrank by an annual rate of 2.9 percent in the third quarter of last year, down from a 3.6 percent drop in the second quarter.
The Central Bank of Brazil issued the following statement: