July 7, 2017 / 1:45 PM / a year ago

UPDATE 1-Deflation strengthens case for bold interest rate cut in Brazil

 (Adds market reaction, background on interest rates)
    By Silvio Cascione
    BRASILIA, July 7 (Reuters) - Consumer prices in Brazil fell
in June at the fastest monthly pace in nearly 19 years, sending
the annual inflation rate to the bottom-end of the official
target range and bolstering the case for another deep interest
rate cut this month.
    Prices as measured by the benchmark IPCA index fell 0.23
percent in June, the first deflation rate since June 2006 and
the fastest drop in prices since August 1998, government
statistics agency IBGE said on Friday.
    The annual inflation rate dropped to 3.00 percent, down from
3.60 percent in the 12 months through May and below the 3.06-
percent rate forecast in a Reuters poll of economists.
    The official inflation target for 2017 is 4.5 percent, with
a tolerance range of 1.5 percentage point.
    Yields on interest rate futures were down as traders added
bets on a 100-basis-point interest rate cut at the next central
bank's monetary policy meeting on July 26. 
    The bank had previously signaled that it could reduce the
pace of cuts to 75-points per meeting because of growing
political uncertainty, but has moderated its tone in recent
speeches as market volatility ebbed and price rises continued to
    Inflation has slumped from nearly 11 percent in early 2016
as a deep recession ended earlier this year left the economy
operating well below its capacity. As inflation slows, the
government lowered its goal for 2019 and 2020 last week, in the
first target reduction in more than a decade.             
    For detailed results, see             

 (Reporting by Silvio Cascione)
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