July 26, 2017 / 5:01 AM / a year ago

Brazil set to cut rates below 10 pct for first time since 2013

BRASILIA, July 26 (Reuters) - Brazil’s central bank is widely expected to bring interest rates below 10 percent for the first time in nearly four years on Wednesday, keeping a fast pace of monetary easing as plunging inflation gives it leeway to aid an incipient recovery.

Most economists surveyed by Reuters expected the central bank to slash its benchmark Selic rate by 100 basis points for a third straight time to 9.25 percent. The decision will be announced at 6 p.m. local time (9 p.m. GMT)

Lower interest rates should help Brazil’s economy accelerate after its worst recession on record ended in the first quarter.

Businesses and investors have called for deeper interest rate cuts after inflation pierced the lower bound of the official goal in mid-July, falling to its lowest in 18 years. Inflation, which surpassed 10 percent less than two years ago, has plunged to just 2.78 percent.

The central bank had previously suggested it could reduce the pace of rate cuts because a major corruption scandal implicating President Michel Temer fanned market volatility.

As instability grew, a weaker exchange rate could fuel inflation, economists said at the time.

But most analysts now expect the political crisis to reduce inflation by denting business confidence and weighing on economic growth - paving the way for another 1 percentage point interest rate cut.

“While there may be no easy answer on whether the current political, reforms-related uncertainties are inflationary or deflationary, we tend to believe that the crisis may have mildly deflationary effects on the short/medium term,” wrote Mauricio Oreng, senior Brazil strategist at Rabobank.

Wednesday’s cut would be the seventh since October in a cycle that is expected to take rates as low as 8 percent by the end of the year, according to a Reuters poll of economists. The last time the Selic rate was below 10 percent was in November 2013. (Reporting by Silvio Cascione; Editing by Andrew Hay)

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