Brazil Monetary Policy


COPOM continues to tighten the reins

At its meeting on 20 July, the Central Bank Monetary Policy Committee (COPOM, Comite de Politica Monetaria) voted unanimously to raise the SELIC interest rate by 25 basis points to 12.50%. The decision was widely expected by the market and followed a similar move in June. An increase in interest rates aims to curb increasing inflationary pressures as well as to steer economic growth to a more sustainable path. Figures for mid-July consumer prices (IPCA-15), released shortly before the COPOM meeting on 20 July, showed that inflation continued to accelerate and stepped up to 6.8% (mid-June: 6.6%). Nevertheless, uncertainty regarding the Central Bank's next move has intensified, following removal of the ?for a sufficiently prolonged period? clause from its latest press release, which has been interpreted by some market participants as a signal that the Bank may refrain from tightening monetary policy in its August meeting. That said, a majority of Consensus Forecast participants anticipate another 25 bps hike in the coming meeting, after which they expect the Central Bank to end the tightening cycle.


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