Brazil: Central Bank unexpectedly holds the SELIC rate at 6.50%
May 16, 2018
At its 16 May meeting, the Central Bank of Brazil’s Monetary Policy Committee (Comité de Politica Monetaria, COPOM) decided to keep the benchmark SELIC interest rate at its record low of 6.50%. The committee’s decision surprised market analysts, who had expected a 25-basis point cut, and paused the easing cycle that began at the end of 2016.
The Central Bank’s decision was motivated by its view that upside risks to inflation have intensified since its previous meeting, largely due to the depreciation of the real and continued capital flight from EM countries as the U.S. raises interest rates. Outside of exchange rate developments, inflation dynamics in Brazil remain favorable. In the accompanying press release, the Bank adjusted its forecasts for inflation, penciling in year-end inflation of around 3.5% in 2018 (March report: 3.8%), assuming the SELIC rate ends the year at 6.50% and the exchange rate ends the year at USD 3.40.
The Bank’s forward guidance was clear. In it, the Bank stated that additional monetary easing was no longer necessary and it intends in the next meetings to maintain the SELIC interest rate at the current level.
Brazil Interest Rate Forecast
FocusEconomics Consensus Forecast participants are still taking the latest developments into account. Last month, they saw the SELIC rate closing 2018 at 6.33% and 2019 at 7.87%.
Author: Lindsey Ice, Economist