Brazil Monetary Policy February 2017

Brazil

Brazil: Central Bank cuts SELIC rate to 12.25% to support depressed economy

February 22, 2017

At its 22 February meeting, the Central Bank’s Monetary Policy Committee (COPOM, Comite de Politica Monetaria) decided to cut the benchmark SELIC interest rate by 75 basis points, keeping the pace of monetary easing unchanged from January. The SELIC rate now rests at 12.25%. The committee’s decision matched market analysts’ expectations as the Central Bank tries to support economic growth in the battered economy.

Easing inflation data along with expectations has allowed the Bank space to loosen monetary conditions and is what primarily drove the decision. Price pressures have eased faster than previously expected and decreasing food prices should act as a positive supply shock going forward. Favorable developments in inflation led the Bank to revise down its inflation forecast in the market scenario to 4.2% in 2017 (previously: 4.4%).

The monetary authority’s communique struck a mostly dovish tone and suggested that the pace of easing could increase depending on incoming data and the government’s progress on fiscal reforms. The Bank emphasized that the duration of the easing cycle will depend on the structural interest rate of the Brazilian economy, which it will continually reassess. The Bank also added that the 2018 inflation outlook was becoming increasingly important in its monetary policy decisions.

The majority of our analysts see the Central Bank cutting the SELIC rate further by the end of next year, with an average forecast of 9.82%. Next year, our panelists see the SELIC rate ending at an average of 9.06%.


Author: Angela Bouzanis, Senior Economist

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Brazil Monetary Policy February 2017

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


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