| BRASILIA, April 11
BRASILIA, April 11 It is not everyday a central
bank is branded hawkish for expectations it will cut interest
rates by 100 basis points, but that is how many economists,
business leaders and politicians see Wednesday's rate decision
All 38 economists polled by Reuters expect the central bank
to slash its benchmark Selic rate by one percentage point to
11.25 percent, marking Brazil's fastest decline in rates since
Yet with inflation falling more rapidly than expected,
critics say the bank should be acting faster to get borrowing
costs into single digits to lift Latin America's biggest economy
out of its worst recession in decades.
Inflation has tumbled from more than 10 percent in 2016 to
4.57 percent last month, but the central bank has failed to keep
pace, some economists said. Rates stand at 12.25 percent, down
only two percentage points after four consecutive cuts, and
still among the highest of any of the G20 industrialized
"These cuts are too small for the size of the hole we're
in," said Maria Cristina Zanella, head of economic research at
Brazil's machinery industry association Abimaq. "The faster we
get to interest rates of 8, 8.5 percent, the better."
Debate centers on the real interest rate - what an investor
pays or receives after allowing for inflation. So-called ex-post
real rates have climbed to their highest in a decade at 8.8
percent, according to central bank calculations.
The bank, however, prefers to calculate real rates based on
inflation expectations and interest rate futures because that is
the metric used by consumers and firms to decide investments.
That rate, so-called ex-ante, has fallen to 4.7 percent
because futures markets are pricing in a long sequence of rate
cuts. This suggests monetary policy is no longer tight and
should spur growth in coming months.
The market expects both measures to stabilize at about 5
percent by year-end, according to the central bank's latest
quarterly inflation report.
The central bank says such disconnect is normal when
inflation slows quickly. However, some economists argue
policymakers should close the gap faster.
CALL TO FRONTLOAD CUTS
"Given that Brazil is in a balance-sheet recession, with
firms and families still too indebted and going through a
deleveraging process, ex-post rates are also a matter for
concern," wrote Carlos Kawall, chief economist of Banco Safra,
urging the bank to "frontload" cuts.
The bank also faces political pressure. Renan Calheiros,
Senate leader for Brazil's largest party, said after the bank's
February policy meeting that interest rates were "immoral" and
should be falling faster.
Still, not all business leaders are frustrated with the
Retail and industry confidence indicators are at their
highest levels since 2014. Some companies have already seen
benefits from recent easing. Executives of real estate company
builder BR Properties SA and retailer GPA SA
forecast savings of 30 to 40 million reais in
expenses for every 100-point rate cut.
Brazil's economy is expected to expand 0.5 percent this
year, ending a two-year recession.
The central bank has said monetary policy will contribute to
faster growth but signaled it is unwilling to move too quickly
due to uncertainty about the level at which interest rates start
Given Brazil's past rollercoaster ride with consumer price
rises, that comes as no surprise to many.
"The central bank would be wise to resist giving in to
market pressure," said Andre Perfeito, chief economist at
Gradual Investimentos. "If something happens, it will be easier
for it to get the ball under control again."
(Reporting by Silvio Cascione; Editing by Daniel Flynn and