Brazil's central bank cut interest rates Wednesday for the fifth consecutive time as inflation continued to cool and the economy slowed under still elevated borrowing costs.

The bank's monetary committee cut the Selic benchmark rate to 13.75% from 14%, as expected. The monetary authority stopped short of stating what its next move would be.

The Copom said in a statement that "this decision is consistent with the strategy for inflation convergence to a level around its target."

It added that the cut doesn't compromise its objective of ensuring price stability while "smoothing economic fluctuations and fostering full employment."

The language suggests another cut is to be expected, said Claudio Ferraz, chief economist at São Paulo-based Galapagos Capital, an investment firm.

"I don't see anything in the communication suggesting the cycle won't continue," he said. However, potential upward price pressures may push the central bank to hold. "Inflation expectations have already deteriorated," he said.

The decision came hours after the Federal Reserve increased interest rates by a quarter of a percentage point. A tightening cycle in the U.S. may curtail Brazil's monetary easing, as a narrowing margin between the fed funds and the Selic rates could weaken the Brazilian real, making imports more expensive and fueling inflation. The real weakened nearly 0.2% against the dollar after the Fed hike.

Brazil's annual inflation slowed to 4.22% in August from 4.44% in July, extending a steady decline since peaking at 4.72% in May. The BCB targets 3% inflation with a tolerance range of 1.5 percentage points. Markets expect prices to heat up in the coming months, and analysts surveyed weekly by the central bank forecast inflation of 4.9% at the end of this year.

The central bank is juggling sticky inflation with a sputtering economy. Brazil's economic output expanded at a 1.9% pace in the four quarters through June, slowing from 2% in the previous 12-month period, and 2.3% last year. Analysts surveyed by the BCB forecast gross domestic product to grow 1.89% this year.

"Brazil's economy is cooling faster than we thought," Bank of America economists said in a report, blaming slowdown soft consumer demand. Second quarter growth leaned "almost entirely on inventory build-up while final demand faded and private consumption slipped into contraction," they wrote, adding that "a sharper deceleration ahead" is expected.

While that prospect calls for faster monetary easing--BofA cut its outlook for the Selic to 13.25% from 13.75% by year end--employment remains relatively high and wages were up 3.3% in the quarter ended in July from a year earlier.

A resilient job market may be fueling inflation in the services sector.

"The inflation pressures among services remain intense and disseminated," as services inflation moderated to 5.47% in August from 5.85% in July, Goldman Sachs's Latin America economist Alberto Ramos said in a note.

Wednesday's interest rate decision comes ahead of general elections in October, where a gaping budget deficit is occupying a good part of the debate. Analysts forecast Brazil's fiscal deficit to reach 8.8% of GDP by year end, a level that economists believe could help fuel inflation.

The next central bank rate decision is scheduled for Nov. 4.