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Brazil Monetary Policy May 2019

Brazil: COPOM keeps monetary policy unchanged at record low

At its 7–8 May meeting, the Central Bank of Brazil’s Monetary Policy Committee (COPOM) unanimously decided to keep the benchmark SELIC interest rate at its record low of 6.50%, where it has rested since the Central Bank paused its long and aggressive easing cycle in March 2018. The decision matched market analysts’ expectations.

A sluggish recovery in Brazil has warranted an accommodative monetary policy stance to stimulate growth, which largely drove the Bank’s decision to maintain rates at record lows. In addition, inflationary pressures have been largely contained, although have surprised slightly to the upside in recent months, further justifying the stance. The Bank modestly upgraded its inflation forecast at its May meeting for the end of 2019 from 3.9%, in a scenario with interest and exchange rates determined by the market, to 4.1%. Inflation is still expected to end the year below the Bank’s 4.25% target.

Looking forward, the Bank struck a largely neutral tone stating that the balance of risks is balanced and that “caution, serenity and perseverance” are critical in monetary policy decisions. However, in its accompanying statement, the Bank did acknowledge that downside risks on inflation from an idle economy have risen somewhat.

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