Brazil inflation nears target band, supporting more monetary easing

By Gabriel Araujo

SAO PAULO, July ‌28 (Reuters) - Brazil's 12-month ​inflation ​rate undershot forecasts and moved closer to the central bank's target range in its mid-July reading, official data showed on Tuesday, paving the ‌way for a fourth consecutive interest rate cut next week.

Annual inflation ⁠in Latin America's largest economy slowed to 4.52%, statistics agency IBGE said, from 4.80% a month ‌earlier, coming in below all ‌estimates in a Reuters poll of economists, whose median forecast was 4.67%.

Brazil's central bank targets inflation at 3%, plus or minus 1.5 percentage points. Its interest ​rate-setting committee, known as Copom, will meet again on August 4-5.

Last month, policymakers cut borrowing costs for a third straight meeting by 25 basis points, ⁠to 14.25%, and left their next steps open while acknowledging a more challenging inflation outlook.

"The drop in mid-month inflation ​in July is likely to provide scope for the central bank to deliver another 25-basis-point interest rate cut at next week's ​meeting," said Capital Economics' senior emerging markets economist ‌Liam Peach.

Central bank governor Gabriel Galipolo said last week that concerns about unanchored inflation expectations support keeping monetary policy restrictive for ⁠longer, with the labor market and activity still resilient in the country.

In the month to mid-July alone, consumer prices were up 0.06%, slowing from 0.41% in the previous month, while ⁠markets had expected a 0.20% rise.

Prices in the period were driven mainly by higher housing costs ​due to a jump in electricity bills. Meanwhile, closely watched food and beverage prices fell 0.66% in the period.

Inter chief economist Rafaela Vitoria said the data reinforced signs that price pressures ‌were easing, noting that underlying indicators such as services inflation and core measures show a clear trend of deceleration.

"In the ‌short term, the conclusion is that Copom can continue cutting rates. There is no reason ⁠for a pause at this ‌moment. Were it not for ​the more volatile external environment, it could even be discussing 50-basis-point cuts," she said.

(Reporting by Gabriel Araujo, Editing by Louise Heavens and ‌Alistair Bell)

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