Brazil Monetary Policy


Central Bank leaves rates unchanged

On 20 October, the Central Bank Monetary Policy Committee (COPOM, Comite de Politica Monetaria) decided unanimously to leave the benchmark SELIC interest rate unchanged at 10.75% in a decision widely expected by market participants. The meeting minutes released on 28 October brought no surprises for market analysts, since the Central Bank is expected to maintain rates unchanged in the near future. The Committee also gave little attention to the rise in inflation forecasts during the last month, stating that recent price pressures are a result of temporary supply shocks affecting food prices, which were nonetheless already expected by monetary authorities and will be compensated for a disinflationary external scenario. In addition, the COPOM highlighted that its mid-term base-scenario includes a tighter fiscal policy stance and a deceleration in the pace of credit loans growth. That said, if these assumptions do not materialize, the Bank could quickly adopt measures, such as increasing reserve requirements for the Brazilian banks, to cool domestic credit growth. Against this backdrop, Consensus Forecast panellists expect the policy rate to end the year at 10.75% by end-2010. For next year, panellists expect the Central Bank to resume the tightening cycle in the second quarter and see the benchmark interest rate ending the year at an average rate of 11.66%.

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