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Brazil Monetary Policy March 2019

Brazil: New COPOM keeps monetary policy unchanged

At its 19–20 March meeting, the Central Bank of Brazil’s Monetary Policy Committee (Comité de Política Monetária, COPOM) unanimously decided to hold 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. The meeting marked the first Central Bank decision by the new COPOM board, including new Governor Roberto Oliveira Campos Neto.

The Bank’s decision comes amid below-target inflation in Brazil’s economy, along with a slow economic recovery. A rally in the real in the fourth quarter and economic slack have helped keep price pressures in check, allowing for the Bank to keep rates at a low level to support growth. The new COPOM left the inflation forecast for 2019 unchanged from the previous meeting and sees inflation ending the year at 3.9%, in a scenario with interest and exchange rates determined by the market. However, the statement did acknowledge that economic activity has been weaker than expected.

Looking forward, the Bank struck a wait-and-see view stressing “caution, serenity and perseverance in monetary policy decisions”. It also downgraded its view of inflationary pressures stating that risks to inflation are broadly balanced, contrasting the previous communique’s upwards tilt. The more dovish tone of the Federal Reserve and moderate economic activity have helped cool inflationary risks and our panel sees rates on hold in the near-term.

Summarizing Nomura’s view of the meeting, Joao Pedro Ribeiro explained:

“We see today’s decision and communique as in line with our view of unchanged rates this year. We see this particularly likely in the near term, which is still marked by high uncertainty on the prospects and timing of social security reform in Congress. In this sense, while the new board acknowledged a scenario marked by weaker growth (albeit still on a gradual recovery path) and less inflationary risks, it also offered  no desire to move policy anytime soon, seemingly setting the stage for a longer period of data (and reform) observation before it sends clearer signals as to the direction of policy. We continue to see risks to our policy rate forecasts as tilted to the downside on weaker-than-expected growth.”

Brazil Interest Rate Forecast   

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