Brazil’s Central Bank Cuts Selic to 14 Percent/Year

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – For the first time in four years, Brazil’s Central Bank Monetary Policy Committee (Copom) reduced the country’s benchmark interest rate (Selic). The reduction of 0.25 percentage points to fourteen percent per year is expected to be the beginning of a reduction cycle for the Selic.

“Taking into account the baseline scenario, the current balance of risks, and the wide array of available information, the Copom decided to reduce the Selic rate to fourteen percent per year, without bias. The Committee judges that convergence of inflation to the 2017 and 2018 target is compatible with a moderate and gradual easing of monetary conditions,” said Copom’s statement announcing the reduction.

According to Copom, the reversal of the upward trend of food prices was more favorable than previously anticipated, but the group still points to the uncertainty of the approval of the fiscal adjustment by Congress as a risk which could pressure inflation once again.

Although many analysts were betting on a 0.50 percentage point decrease this time around, the decision by Copom members was unanimous. The magnitude of monetary easing and a possible speeding up of its pace, according to the Copom, will depend on a favorable evolution of factors from now on.

The last time the Selic rate was reduced was in October of 2012, when the Copom cut the benchmark interest rate from 7.5 percent to 7.25 percent. In April of 2013, due to negative economic indicators, the Copom started to increase Brazil’s Selic. According to the weekly Focus Report, a survey conducted by the Central Bank with 100 financial institutions, the Selic should end 2016 at 13.50 percent and in 2017 at 11.00 percent.