Brazil Monetary Policy July 2016


New monetary policy committee leaves SELIC rate unchanged

At its 20 July meeting, the Central Bank’s new Monetary Policy Committee (COPOM, Comite de Politica Monetaria) decided to leave the benchmark SELIC interest rate unchanged at 14.25%. The meeting marked the first monetary policy decision for the new COPOM, which is led by Central Bank President Ilan Goldfajn. Despite the new makeup of the committee, the SELIC interest rate was held unchanged for the eighth consecutive meeting, matching market expectations. The SELIC interest rate remains at a near-decade high amid strong inflationary pressures and an economic recession in the country.

The new COPOM changed the format of the accompanying statement, adding more information, although the overall tone was similar to the previous communique. The Bank commented that recent data suggests that the Brazilian economy has stabilized, although, it continues to lack momentum. The Bank revised down its 2017 inflation forecast, stating that it sees year-end inflation at 4.5% (previous projection: 4.7). Despite the lower projection, the Bank outlined a number of upside risks to inflation and emphasized that there is currently no room for monetary easing. Commenting on the Central Bank’s decision, Cassiana Fernandez, Brazil Chief Economist at JPMorgan, says:

“The message seems to be that, with further improvement on inflation expectations, better short-term inflation prints and some improvement on the fiscal front, a rate cut may be near. However, August seems to be too early, in our view, given the low likelihood of much more visibility on the fiscal front until then. In this sense, we don’t see a significant change of guidance in today’s statement, and therefore we continue calling for rate cuts only in October, with the Central Bank delivering the first 50bp cut of the total 250bp we expect in the cycle until April 2017.”

Participants in the LatinFocus Consensus Forecast see the SELIC rate ending 2016 at an average of 13.50%. Panelists see the SELIC rate ending 2017 at an average of 11.06%.

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Brazil Monetary Policy Chart

Brazil Monetary Policy July 2016 2

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

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