The central bank began easing monetary policy during its October meeting, as it lowered its interest rate for the first time in four years. Although inflation rate slowed recently to a 20-month low of 7.87 percent in October, it remained well above the central bank's mid-point target of 4.5 percent. Furthermore, Brazil's economy shrank for the seventh consecutive quarter in the three months to September 2016, as investments dropped sharply and household consumption continued to fall.
Meanwhile, a scandal within President Michel Temer's cabinet raised fears he could lose support in Congress to push ahead austerity reforms; and added pressure on the real, which has dropped by more than 6 percent against the dollar this month.
Inflation expectations fell to 6.72 percent for 2016 and 4.93 percent for 2017, according to the latest FOCUS Market Readout released by the central bank on November 25th. Meanwhile, the economy is expected to contract by 3.49 percent in 2016 and to grow by 0.98% next year.