Brazil Monetary Policy


Brazil: Brazil Central Bank cuts SELIC to single digit

March 7, 2012

At its 7 March meeting, the Central Bank's Monetary Policy Committee (COPOM, Comite de Politica Monetaria) decided to reduce the SELIC interest rate by 75 basis points to 9.75% in a split 5-2 vote. This was the fifth consecutive meeting in which policymakers opted to cut interest rates, but the first one in which the Central Bank of Brazil (BCB) decided to cut the rate by more than 50 basis points. As a result, the SELIC interest rate entered into single-digit territory for the first time since mid-2010. The move surprised market analysts, who had expected a 0.50% rate cut. COPOM's decision aims to provide a boost for the slowing Brazilian economy. National accounts figures published on 6 March showed that GDP growth slowed down substantially to 2.7% in 2011, well below 2010's 7.5% increase. Monetary authorities expect that a combination of weaker external demand and lower economic growth at home should translate into lower inflationary pressures going forward. In addition, on 15 February, the Brazilian government announced its plans to withhold BRL 55 billion (USD 32 billion) in budget spending in 2012 in order to attain the primary surplus target of 3.0% of GDP, as well as to ease pressure on inflation. Regarding the latter, Finance Minister Guido Mantega explicitly stated that ?the government's fiscal effort should give Brazil's central bank room to continue a cycle of interest rate cuts that began last August.?


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