Brazil Monetary Policy


Brazil: Central Bank cuts SELIC rate to 9.00%

April 18, 2012

At its 18 April meeting, the Central Bank's Monetary Policy Committee (COPOM, Comite de Politica Monetaria) decided to reduce the benchmark SELIC interest rate by 75 basis points to 9.00% in a unanimous vote. This was the sixth consecutive meeting in which policymakers opted to cut interest rates and the second one in which the Central Bank decided to cut the rate by 75 basis points. As a result, the SELIC interest rate now sits only a notch above the historic low of 8.75% last seen two years ago. The move was in line with market expectations. According to the minutes released on 26 April, the Central Bank argued that given the amount of policy stimulus implemented thus far, any additional monetary easing should be conducted with caution, suggesting that the Bank may adopt a more pragmatic "wait-and-see" approach in the coming months. In addition, policy makers stated that household consumption will remain robust going forward, driven by income growth and an expansion of credit. Regarding price developments, the Bank stated that inflation remains in a downward trend and projects inflation to settle within the target range this year and next. Meanwhile, on 3 May, Finance Minister Guido Mantega announced new rules for savings accounts, widely known as the poupanca, to provide the Central Bank with more room to continue reducing interest rates. The new rule states that returns on new savings accounts will now pay 70% of the SELIC rate plus a fluctuating reference rate (TR, Taxa Referencial), once the SELIC interest rate falls below the 8.50% level.


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