RIO DE JANEIRO, BRAZIL – The Monetary Policy Committee (COPOM) decided on Wednesday, September 18th, to make its second consecutive cut of 0.50 percentage point in the SELIC, reaching 5.50 percent per annum, the lowest basic interest rate in Brazil’s history.
The decision was anticipated by virtually the entire market, as shown by a survey conducted by XP Investimentos. Now the question is as to the Central Bank’s next steps, as the expectation growing in the market is that the base interest rate may close the year at 5.00 percent.
Despite the exchange rate depreciation after the last meeting in July, economists believe that inflation should remain reasonably stable, given that there is also considerable idleness in the economy.
In its announcement, COPOM reinforced the idea that the cycle of interest rate cuts has not yet ended, saying “that the benign scenario for prospective inflation should allow an additional adjustment in the level of stimulation”.
In addition, the Central Bank’s committee stressed that in its basic scenario for inflation, risk factors in both directions continue to exist.
On the one hand, the Central Bank says that “the high level of idleness may continue to produce a lower than expected prospective trajectory”.
On the other hand, there is still the risk that an eventual frustration with the continued reforms could affect risk premiums and increase the inflation trajectory, which could worsen in the event of a downturn in the foreign environment.
Source: InfoMoney