Brazil Monetary Policy June 2017


Brazil: Central Bank slashes SELIC rate to 10.25% but signals slower easing pace ahead

May 31, 2017

At its 31 May meeting, the Central Bank’s Monetary Policy Committee (COPOM, Comite de Politica Monetaria) decided to cut the benchmark SELIC interest rate by 100 basis points, keeping the size of easing unchanged from April’s meeting. The SELIC rate now rests at 10.25%. The committee’s decision matched market analysts’ expectations and marked the sixth consecutive cut as the Central Bank moves to support economic growth in the battered economy.

Favorable inflation data along with a stabilizing economy has allowed the Bank space to loosen monetary conditions and is what primarily drove the decision. Price pressures have eased across all components and the Bank updated its inflation forecast in the market scenario and now sees inflation at around 4.0% in 2017, in a scenario where the SELIC rate ends the year at 8.50%.

However, despite the favorable data, the Bank was more hawkish than previously in its communique as uncertainty has risen in Brazil’s economy. The government has become engulfed in a corruption scandal that has led to widescale protests calling for President Michel Temer to resign and is threatening to derail economic reforms if support wanes in Congress. This situation led the Bank to hint that it could slow down the pace of easing if politics threatens the country’s outlook and a number of our analysts see slower rate cuts ahead.

All of our analysts see the Central Bank cutting the SELIC rate further by the end of the year, with an average forecast of 8.72%. Next year, our panelists see the SELIC rate ending at an average of 8.60%.

Author: Angela Bouzanis, Senior Economist

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Brazil Monetary Policy Chart

Brazil Monetary Policy May 2017 0

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

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