Brazil's annual inflation ends 2025 within target range, rate cuts seen ahead

By Marcela Ayres

BRASILIA, Jan 9 (Reuters) - Brazil's annual inflation slowed more than the central bank and markets had anticipated, data from statistics agency IBGE showed on Friday, ending 2025 within the official target range at 4.26% and reinforcing expectations for monetary ?easing ahead.

The reading marked a positive surprise for the central bank, which in July had warned that inflation ?would remain above 4.5% - the upper limit of its target of 3%, ?plus or minus 1.5 percentage points - until the end of ?the first quarter ?of 2026.

Instead, consumer prices returned to the target range months earlier, in November. Over the past five years, ?Latin America's largest economy had met its ?annual inflation goal only in 2023.

Annual inflation cooled further in December, with the annual rate coming in below the 4.3% expected by ?economists in a Reuters poll and the ?4.4% projected ?by the central bank last month.

At the time, policymakers cited a more benign short-term inflation trend, improved expectations, and cheaper fuel driven by a stronger currency ?and lower oil prices, all under a restrictive interest-rate environment.

The central bank halted in July an aggressive tightening cycle that had added 450 basis points to the benchmark Selic rate, taking it to a near two-decade high of 15%.

Since then, policymakers have maintained a hawkish tone, stressing the need to keep rates steady ?to ?bring inflation to the target's midpoint.

The median forecast in a weekly central bank survey of economists points to a first rate cut in March, though ?some economists still believe an easing cycle could start at the January 27-28 meeting.

Kimberley Sperrfechter, emerging markets economist at Capital Economics, said the latest inflation data "leaves the door just about open to an interest rate cut" later this month.

"But whether the first cut in the cycle comes this month or in March, rates are likely to come down further than is widely ?anticipated," she added in a note to clients.

In December alone, consumer prices in Brazil rose 0.33%, slightly below the 0.35% expected by economists in the Reuters poll but accelerating from a 0.18% increase ?in November.

(Reporting by Marcela Ayres; Additional reporting by Isabel Teles; Editing by Gabriel Araujo)