By Lise Alves, Senior Contributing Reporter
SÃO PAULO, BRAZIL – Brazil’s Central Bank (BC) lowered the country’s benchmark interest rate (SELIC) on Wednesday by 0.5 percentage points, to seven percent per year, the lowest level since 1986. This is the tenth consecutive time the Bank’s Monetary Policy Committee (Copom) has lowered the SELIC.
“The Committee believes that the basic scenario for inflation has, to a large extent, evolved as expected,” stated the COPOM after the meeting to justify the reduction in the rates.
“The behavior of inflation remains favorable, with several measures of underlying inflation at comfortable or low levels, including the components most sensitive to the economic cycle and monetary policy,” concluded the committee.
The decision was already expected by financial analysts. According to the note, the decision by CB directors was unanimous. As for future cuts the Committee expects a ‘moderate reduction’ from now on.
The Selic is the Central Bank’s main instrument to keep inflation under control.
According to the Brazilian Statistics Bureau (IBGE), the IPCA inflation index registered a 0.42 percent increase in October. In the twelve months ending in October, the index accumulated an increase of 2.7 percent, significantly below the inflation target floor, of three percent.
Until 2016, Brazil’s National Monetary Council (CMN) established an inflation target of 4.5 percent with a two percent margin tolerance, so that acceptable inflation rates could vary from 2.5 percent to 6.5 percent. For this year, the CMN maintained the target but reduced the margin of tolerance to 1.5 percentage points.
The Central Bank in its October Inflation Report forecasts an inflation total of 3.20 percent for 2017, while market analysts expect inflation to close even smaller, at 3.03 percent.