Brazil: Central Bank continues with easing cycle, cuts SELIC rate
November 30, 2016
At its 30 November meeting, the Central Bank’s Monetary Policy Committee (COPOM, Comite de Politica Monetaria) decided to cut the benchmark SELIC interest rate, maintaining a slow pace of monetary easing by lowering it from 14.00% to 13.75%. The decision, which met market expectations, was the second cut in what is expected to be a long easing cycle to support economic growth in the battered economy. The rate had been kept at a near-decade high of 14.25% for over a year, against a backdrop of elevated inflationary pressures.
The Bank stated that the decision was due to a favorable trajectory for inflation, with recent data more positive than had been expected. This, combined with poor economic data showing that the recovery may be slower than projected earlier, caused the Bank to cut the SELIC rate to support growth. Consequently, the Bank stated that it now sees inflation around 6.6% at the end of the year and around 4.4% in 2017.
The Bank struck a mixed tone in its communique and outlined several upside and downside risks to the inflation outlook. The Bank signaled that a speeding up of the easing cycle could be possible if the external backdrop improves. Along these lines, the Bank stressed that the external environment is very uncertain and while it is widely expected that the U.S. will hike interest rates, the future economic policy of the country is unclear. Specifically, the Bank stated that, "[an] intensification of the disinflation process relies on an adequate global environment.”