Brazil Monetary Policy


Brazil: Central Bank raises interest rate to over-three-year high

December 3, 2014

At its 3 December meeting, the Central Bank’s Monetary Policy Committee (COPOM, Comite de Politica Monetaria) decided to raise the benchmark SELIC interest rate by 50 basis points from 11.25% to 11.75%. The SELIC interest rate is now at its highest level since September 2011. The move was partly anticipated by the markets, which foresaw an increase of 25 basis points to 11.50%.

The Bank’s decision to increase the SELIC interest rate was unanimous. In the accompanying statement, the Bank acknowledged that, given the cumulative and lagged effects of monetary policy, COPOM believes that further monetary policy should be “implemented with parsimony”.

The announcement followed October’s decision to raise the SELIC interest rate by 25 basis points from 11.00% to 11.25%. Policy makers have been trying to shift Brazil’s economy into a higher gear as Latin America’s largest economy been plagued with near zero economic growth and high inflation this year. Enestor Dos Santos, Chief Economist for Latin America at BBVA Research comments that,

In spite of the faster pace, which we see as a move by the monetary authority to try to regain credibility in its fight against inflation and which is consistent with the more restrictive tone of fiscal policy expected from the beginning of 2015 onward, the communique of yesterday’s decision signaled that the ongoing tightening cycle in the SELIC rate will not last much longer.

LatinFocus Consensus Forecast participants see the SELIC rate ending 2014 at an average of 11.75%. Panelists see the SELIC rate ending 2015 at an average of 12.22%.

Author: Angela Bouzanis, Senior Economist

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Brazil Monetary Policy Chart

Brazil Monetary Policy December 2014

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

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