Brazil Monetary Policy


COPOM minutes suggest more prolonged tightening cycle to come

On 20 April, the Central Bank Monetary Policy Committee (COPOM, Comite de Politica Monetaria) decided to slow the pace of tightening, raising the SELIC interest rate just 25 basis points to 12.00%. The decision surprised the market, as analysts had expected the Central Bank to hike rates by 50 basis points for a third time since December last year. In fact, the decision was not unanimous, as two of seven members of the COPOM voted for a 50 basis points hike. According to detailed minutes released on 28 April, the Central Bank recognised that the prospective inflation scenario deteriorated since the last meeting, as inflation is quickly approaching the ceiling of the 4.5% target 2.0 percentage points set for this year. That said, the Bank, which had already acknowledged that inflation is likely to exceed the centre of the target this year, stated that the most suitable strategy to bring inflation back to the centre of the target in 2012 is to implement a sufficiently prolonged tightening cycle "starting from this meeting". Accordingly, market participants expect at least another two 25 basis points increases before the COPOM halts the tightening cycle.

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