Brazil’s benchmark SELIC interest rate to reach 7% in 2021, says Bank of America

RIO DE JANEIRO, BRAZIL – The Selic may rise to 7% in 2021, Bank of America (BofA) estimates in a report sent to clients on Tuesday, June 22. David Beker and Ana Madeira, signers of the document, believe that the Central Bank will increase the pace of macroeconomic adjustment.

Copom could raise interest rates twice by 100 basis points in August and September, followed by a 50 basis point increase in October and a final 25 basis point increase in December, with the Selic reaching 7%.

For 2022, BofA estimates the rate would remain at 7%.

According to Beker and Madeira, the Central Bank struck a more cautious tone in the minutes of its last Copom meeting. They cite two paragraphs:

1º) the Central Bank noted that the advisors discussed the possibility of a faster reduction in monetary stimulus “as early as this meeting” but decided to maintain the current pace while stressing that a faster normalization was possible at the next meeting;

2º) the Bank noted that despite the alignment of inflation with the target in its baseline scenario (with a Selic of 6.25% and 6.50% at the end of years 21 and 22, respectively), the balance of risks was still skewed to the upside due to the fiscal scenario and therefore would warrant a less stimulative Selic rate path than that used in its baseline scenario.

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