Brazil’s Central Bank Reduces Benchmark Interest Rates

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – In a unanimous decision, Brazilian Central Bank’s Monetary Policy Committee (Copom) announced Wednesday, November 30th, it was reducing the country’s benchmark interest rate (Selic) for the second consecutive month, by 0.25 percentage points to 13.75 percent a year. The decision received criticism from economic entities.

“Recent inflation was more favorable than expected, partly as a result of declining food prices, but also with signs of more widespread disinflation,” said the Copom statement released after the meeting.

However, according to the São Paulo Industries Federation (Fiesp), the reduction was not enough and sentences the country to stagnation. “There is no doubt that more aggressive interest rate cuts are needed. By opting for a 0.25 percentage point cut, the Central Bank sabotages the recovery of economic growth, condemning it to stagnation for the coming years and producing an increase in unemployment,” said Fiesp president Paulo Skaf in a press release.

The Rio de Janeiro Industries Federation (Firjan) said that the Copom decision was expected, since recent data has reinforced ‘a scenario of recession and falling inflation’. In a released statement, Firjan goes on to say that ‘the federal government should focus its efforts on fiscal rebalancing of states and pension reform as soon as it approves the PEC (amendment) limiting public spending’.

According to the Central Bank, forecasts for inflation in 2016, declined and are around 6.6 percent while official and market forecasts for 2017, hover around 4.4 percent and 4.7 percent, respectively. For 2018, inflation is expected to be around 3.6 percent.