Interest Rate in Brazil

Brazil - Interest Rate

COPOM chops SELIC rate to new record low

At its 30–31 July meeting, the Central Bank of Brazil’s Monetary Policy Committee (COPOM) unanimously decided to cut the benchmark SELIC interest rate to 6.00% from 6.50% where it had previously sat. This marks a new record low since the Central Bank began using an inflationary-targeting regime in 1999. Market analysts were split on whether the Bank would deliver a strong 50-basis-point cut or a softer 25-basis-point reduction. The move should help support the economic recovery, which appears to have stalled in the first half of 2019.

Moderate inflation, weak economic activity, a more accommodative outlook for global interest rates and progress on the government’s reform agenda were all factors behind COPOM’s decision to cut rates. Inflation fell sharply below the Central Bank’s target in June and is expected to remain contained ahead due to feeble economic activity. A more dovish outlook for interest rates in advance economies and progress on the critical pension reform have supported the real, and also reduced risks to a cut in interest rates. Accordingly, the Bank cut its inflation forecast, in a scenario with interest and exchange rates projected by the market, to 3.6% for end-2019 (previously: 3.9%).

Looking ahead, the Bank struck a dovish tone, signaling that more easing could potentially be on the table. COPOM stated that inflation is “benign” which, if this situation remains, should allow for further stimulus. That said, the Bank did state that both upside and downside risks to the price outlook exist, and suggested further stimulus would only come if the government continues to progress with its reform agenda.

Our panelists are still taking the latest decision into account and an updated Consensus Forecast will be released on 6 August.