The city on the beach in Brazil

Brazil Monetary Policy February 2018

Brazil: Central Bank cuts SELIC rate to 6.75%, signals end of easing cycle

At its 7 February 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, a smaller cut than the 50 basis-point reduction it made at the previous meeting. The SELIC rate now rests at 6.75%—a record low. The committee’s decision matched market analysts’ expectations and marked the 11th consecutive cut in the Bank’s easing cycle.

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 the behavior of inflation is favorable and refrained from revising its forecasts. The Bank sees inflation ending 2018 around 4.2%, in a scenario where the SELIC rate ends the year at 6.75%.

The Bank’s forward guidance suggested that this was likely the final cut in the easing cycle, if incoming data is as expected. The SELIC rate is now at a historical low and should be sufficient to stroke growth. Moreover, pre-election uncertainty could cause the Bank to take a more cautious stance and refrain from changing interest rates. However, the Bank did still highlight that upside and downside risks to the outlook persist and left a window open for a surprise move. Commenting on the outlook for policy rates, analyst João Pedro Ribeiro adds:

“We continue to believe that: the current level of the Selic rate, the prospects for the output gap and inflation conditions should allow the BCB to remain on hold throughout 2018, before normalization to higher rates next year. The pace of narrowing of the very wide output gap, the behavior of inflation expectations going into an uncertain electoral process and the conditions in the external environment will all be key in determining when and how such normalization begins.”

Free sample report

Access essential information in the shortest time possible. FocusEconomics provide hundreds of consensus forecast reports from the most reputable economic research authorities in the world.
Close Left Media Arrows Left Media Circles Right Media Arrows Right Media Circles Arrow Quote Wave Address Email Telephone Man in front of screen with line chart Document with bar chart and magnifying glass Application window with bar chart Target with arrow Line Chart Stopwatch Globe with arrows Document with bar chart in front of screen Bar chart with magnifying glass and dollar sign Lightbulb Document with bookmark Laptop with download icon Calendar Icon Nav Menu Arrow Arrow Right Long Icon Arrow Right Icon Chevron Right Icon Chevron Left Icon Briefcase Icon Linkedin In Icon Full Linkedin Icon Filter Facebook Linkedin Twitter Pinterest