By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – In a surprising move, the Brazilian Central Bank’s Monetary Policy Committee (COPOM) decided to leave the benchmark interest rate (Selic) unchanged. This is the fourth consecutive time the rate has been maintained at 14.25 percent.

Central Bank President, Alexandre Tombini, at the start of a Copom meeting in Brasilia
Central Bank President, Alexandre Tombini, at the start of a COPOM meeting in Brasilia, photo by Elza Fiuza/Agencia Brasil.

“Evaluating the macroeconomic scenario, the outlook for inflation and the current balance of risks, and considering the increase of domestic, and especially foreign, uncertainties, the Copom has decided to maintain the Selic rate at 14.25 percent per year,” said the statement delivered by the Committee after the decision.

According to officials six of the eight Committee members, including Central Bank President, Alexandre Tombini, voted to maintain the current Selic level, while two voted for an increase by 0.50 percent.

The decision surprised economic analysts, who believed that the Central Bank would take a more aggressive stance in lowering inflation to its target by increasing the Selic by 0.5 percent. According to local media, the Central Bank, was pressured by President Dilma Rousseff’s PT party and the country’s productive sector to maintain the Selic at the current level.

The maintenance of the Selic at 14.25 percent however, was criticized by several workers’ unions. The National Confederation of Financial Sector Workers (Contraf-CUT) stated in a press release that the decision would push the Brazilian economy over the edge.

“Maintaining the benchmark interest rate only serves to maintain the economy in a recession, with negative impact on job generation,” stated Contraf-CUT President Roberto von der Osten. According to the official the Selic at this level only deepens the Brazilian crisis, increases public debt and drains resources from society.

For one of Brazil’s largest worker’s unions, Força Sindical, the current Selic does not help to lower inflation. “The government’s economic policy is breaking the country. Millions of workers out of work and the majority of companies with idleness capacity of more than fifty percent show that the economic policy put forth by Dilma Rousseff’s government is taking our country down a dark hole,” said the union’s president, Paulo Pereira da Silva, in a press release.

The Selic is one of the instruments used by Brazil’s government to help control inflation, which according to official data totaled 10.67 percent in 2015, the highest rate since 2002. Brazil’s National Monetary Council established a 4.5 percent target center with a two percent tolerance (either up or down) for inflation on any given year.

In its December Inflation Report, Brazil’s Central Bank forecast that inflation will close 2016 at 6.20 percent and within the target margin, while the market was a bit more pessimistic, forecasting inflation accumulated this year to reach seven percent.

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