Brazil Monetary Policy September 2018


Brazil: Central Bank holds SELIC rate at 6.50% but warns downside risks have increased

September 20, 2018

At its 18–19 September meeting, the Central Bank of Brazil’s Monetary Policy Committee (Comité de Politica Monetaria, COPOM) unanimously decided to keep the benchmark SELIC interest rate at its record low of 6.50%. The decision matched market analysts’ expectations. The Central Bank paused the long and aggressive easing cycle that began at the end of 2016 at its May meeting.

The decision to hold the SELIC rate unchanged was motivated by weak economic growth and manageable underlying inflation. However, the Bank considers both the risk of stalling economic reforms following October’s elections and vulnerability of emerging economies to have increased, both of which could fuel inflation going forward. On the other hand, the Brazilian economy’s weak pace of recovery and anchored inflation expectations could translate into lower-than-expected inflation.

The Bank revised its inflation expectation for 2019 upward but lowered this year’s projections, seeing year-end inflation of around 4.1% (previously: 4.2%). Next year, the Bank sees inflation ending 2019 at 4.0% (previously: 3.8%), assuming the SELIC rate concludes the year at 8.00% and the real at 3.75 per USD. However, overall, the statement struck a slightly more hawkish tone than in the previous meeting in August, explicitly stating that the gradual removal of stimulus is on the cards and will depend on the evolution of both the inflation outlook and the balance of risks.

Brazil Interest Rate Forecast

FocusEconomics Consensus Forecast participants see the SELIC rate closing 2018 at 6.72% and 2019 at 8.02%.

Author: Massimo Bassetti, Senior Economist

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