Brazil Cuts Interest Rate Further

The Central Bank of Brazil cut its key Selic rate by 25 basis points to 6.50 percent on 21 March 2018 following a 25-bps slash on 7 February 2018. The cut, widely anticipated and unanimous, was the eleventh straight, bringing borrowing costs to the lowest in modern history amid below-target inflation and a gradually improving economy. 

The statement underscored that set of indicators of economic activity released since the last Copom meeting shows consistent recovery of the Brazilian economy. It also mentioned inflation developments remain favorable. With these input, the Committee judged that economic conditions prescribe accommodative monetary policy, i.e., interest rates below the structural level. Regarding the next meeting, policymakers view an additional moderate monetary easing as appropriate. The Committee judges that this additional stimulus mitigates the risk of delayed convergence of inflation toward the targets.

The central bank started its easing cycle in October of 2016 after the inflation rate eased from double digits. Consumer prices in Brazil increased 2.84 percent year-on-year in February of 2018, barely unchanged form 2.86 percent in January and market expectations of 2.85 percent. It was the lowest inflation rate for a February month since 1999.

The economic recovery is still taking longer than initially expected, albeit improvements are now visible. Industrial production rose 5.7 percent year-on-year in January and has booked positive numbers for the last nine months. Meantime, auto production rose 15 percent to 432 thousand units in the first two months of 2018.

The median estimate in the last central bank poll of economists (16 March 2018) currently points to growth of 2.83 percent for 2018 (vs 2.80 percent four weeks ago) and of 3.00 percent for 2019 (unchanged). Analysts expect the Selic rate to end 2018 at 6.50 percent (vs 6.75 percent). 

Brazil Cuts Interest Rate Further

Mario |
3/21/2018 9:10:14 PM