Brazil Monetary Policy


Central Bank decides to hike interest rate for sixth consecutive meeting

At its 29 July meeting, the Central Bank’s Monetary Policy Committee (COPOM, Comite de Politica Monetaria) decided to raise the benchmark SELIC interest rate by a further 50 basis points from 13.75% to 14.25%, continuing its tightening cycle. The move was in line with market expectations and represented the sixth consecutive decision to hike rates. As a result, the SELIC interest rate is at a nine-year high.

In the brief accompanying statement, the Bank outlined that the decision to increase the SELIC interest rate was unanimous. In addition, the Bank explained that the hike is consistent with its assessment of the current macroeconomic situation, inflation outlook and current balance of risks. The Bank added that keeping the SELIC rate at this historically high level for a long period is needed to bring inflation down to the target range by the end of next year, signaling a likely end to the tightening cycle.

The move comes just over one week after President Dilma Rousseff announced a large reduction in her government’s primary fiscal surplus target for this year and just days after the Brazilian real plunged to a 12-year low. Policy makers have been trying to shift Brazil’s economy into a higher gear as Latin America’s largest economy has been plagued by stagnating economic growth and high inflation.

LatinFocus Consensus Forecast participants see the SELIC rate ending 2015 at an average of 14.34%. Panelists see the SELIC rate ending 2016 at an average of 12.29%.

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Brazil Monetary Policy Chart

Brazil Monetary Policy July 2015

Note: SELIC target rate (Taxa SELIC meta) in %.
Source: Central Bank of Brazil (Banco Central do Brasil).

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