Brazil's annual inflation slows to lowest in over a year before rate decision

SAO PAULO, Dec 10 (Reuters) - Brazil's 12-month inflation slowed in November to its lowest level in more than a year, data from statistics agency IBGE showed on Wednesday, undershooting market forecasts ahead of the central bank's final policy decision of 2025. Annual inflation in Latin America's largest economy stood at 4.46% last month, down from 4.68% in October, marking the lowest since September 2024 and below the 4.49% forecast by economists polled by Reuters. Brazil's central bank is widely expected to hold its benchmark interest rate at a near two-decade high of 15% for the fourth time in a row later on Wednesday, but markets are looking for clues on when it might start lowering borrowing costs.

The fresh data will not prompt a rate cut now, "but it does suggest that, despite recent hawkish noises from policymakers, an interest rate cut in January is still in play," Capital Economics' senior emerging markets economist Liam Peach said. Central bank governor Gabriel Galipolo acknowledged earlier this month that the inflation scenario had improved after aggressive monetary tightening, but noted it was still not enough to meet the bank's 3% target.

Despite a 1.5 percentage-point tolerance band in either direction, which means annual inflation is currently within the bank's target range, policymakers have vowed to return it to 3%.

In November alone, IBGE said, consumer prices in Brazil rose 0.18%, below market forecasts of 0.20% but accelerating from the 0.09% increase in October.

Higher personal expenses and housing prices drove the monthly rise, the agency said, while noting that closely watched food and beverage prices eased 0.01%. Household articles, healthcare, and communication costs also fell.

"This improving backdrop allows a rate cut as soon as January," Pantheon Macroeconomics' chief Latin America economist Andres Abadia wrote in a note to clients. "And the (Monetary Policy Committee) will likely acknowledge this implicitly at today's meeting." (Reporting by Gabriel Araujo; Editing by Aida Pelaez-Fernandez, Kirsten Donovan)