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Brazil Monetary Policy March 2018

Brazil: Central Bank cuts SELIC rate to 6.50%, signals more easing ahead

At its 21 March meeting, the Central Bank of Brazil’s Monetary Policy Committee (Comité de Politica Monetaria, COPOM) decided to cut the benchmark SELIC interest rate by 25 basis points, continuing its easing cycle that began at the end of 2016. The SELIC rate now rests at 6.50%—a record low. The committee’s decision matched market analysts’ expectations and marked the 12th consecutive cut.

Historically low inflation has afforded the Central Bank space to reduce rates to support the economic recovery. In the accompanying press release, the Bank commented that inflation has been more moderate in 2018 than previously expected, and it now sees inflation ending 2018 around 3.8%, in a scenario where the SELIC rate ends the year at 6.50%.

Surprisingly, the Bank’s forward guidance suggested that another cut could be in the cards, contrasting the previous meeting’s guidance. The Bank stated that “regarding the next meeting, at this time the Copom views an additional moderate monetary easing as appropriate.” While it highlighted that another cut could help inflation reach target faster, it also acknowledged that risks to the inflation outlook linger, which could interrupt its easing cycle.

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