Steady inflation in Brazil in March paves way for rate cuts

The broadest gauge of price pressures for South America's largest economy continued to retreat in March and analysts believed a host of factors would continue to push costs lower, paving the way for a large cut to the country's benchmark policy rate.

A 0.2% month-on-month drop in wholesale prices kept the IGP-M inflation index steady in comparison to February (consensus: 0.1%), with agricultural prices having the biggest impact as negative base effects from last year's El Niño and weakness in the country's currency, the real, washed out.

Looking ahead to the next three to six months, Andres Abadia, senior international economist at Pantheon Macroeconomics, saw the lagged impact of the economic recession, tighter fiscal policy, recent strengthening in the real and favourable weather conditions at the start of the year all combining to suppress inflation still further.

A drop in inflation expectations would also play a hand, Abadia said, allowing Banco Central do Brasil to cut its benchmark rate by 100 basis points when its top policymakers next met, on 12 April, from its current level of 12.25%.

As of 1352 GMT the US dollar was 0.47% higher against the Brazilian currency unit at 3.1344, but still near its weakest mark in almost two years.