UPDATE 1-Brazil central bank could cut rates by 100 bps at May meeting, says Barclays

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By Jamie McGeever

BRASILIA, April 22 (Reuters) – Brazil’s central bank could cut its benchmark Selic interest rate by 100 basis points to 2.75% at its next policy meeting in May, Barclays chief Brazil economist Roberto Secemski wrote in a note on Wednesday.

Secemski said a more dovish tilt in policymakers’ recent comments and the continued decline in inflation expectations will steer the bank’s rate-setting committee known as ‘Copom’ toward a reduction of “at least” 75 basis points.

“Changes in (central bank) communication with the market suggest to us that the bank intends to deliver a larger cut than what was previously priced by the (rates) curve,” Secemski wrote.

“We now expect the Selic rate to be reduced at least 75bp on May 6, to 3.00%, not discarding a 100bp cut should financial conditions be supportive of the move,” he said.

Secemski also cited Brazilian media reports of other central bank officials’ comments to financial institutions in recent online live events, which were not broadcast publicly and which Reuters cannot verify.

Central bank president Roberto Campos Neto said this week that further easing was part of the bank’s crisis-fighting arsenal, and that conditions have changed a lot since Copom’s last meeting in March when it said deeper rate cuts could be “counterproductive and result in tighter financial conditions”.

The central bank’s latest weekly ‘FOCUS’ survey of economists showed that end-year inflation is now projected to be 2.23%, significantly below the central bank’s official goal of 4.00%. The average forecast for next year fell to 3.40%, also further below official 2021 target of 3.75%.

Interest rate futures have fallen sharply in recent days. The September 2020 contract fell as low as 2.80% on Wednesday and the January 2021 contract fell to 2.60%, implying significant policy easing in the coming months. (Reporting by Jamie McGeever Editing by Chris Reese and Alistair Bell)

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