The statement underscored that economic activity remains consistent with a gradual recovery of the Brazilian economy; that the global outlook has been favorable; and that inflation developments remain favorable, with various indicators running at low levels. The Committee judged that economic conditions prescribe accommodative policy, with economic reforms contributing to the reduction of the structural interest rate. Regarding the next meeting, the Copom views a moderate reduction of the pace of easing as appropriate.
The central bank started its easing cycle in October last year after the inflation rate eased from double digits. Inflation slowed faster than expected in the past seven months due to subdued economic activity and a stronger real. Consumer prices in Brazil increased 2.46 percent year-on-year in August of 2017, slowing from a 2.71 percent rise in July and below market expectations of 2.6 percent. The inflation rate eased for the 12th consecutive month to a new low since February of 1999. It is also the lowest rate for an August month since at least 1980 as a record harvest dragged down food prices.
The economic recovery is still taking longer than initially expected, albeit recent improvements seen lately. Auto production in Brazil jumped 15.4 percent to 260.3 thousand vehicles in August of 2017 from a revised 225.5 thousand in the previous month. It is the strongest increase in car production since May. Also, consumer confidence rose to 101.6 in August 2017 from 99.5 in the previous month. It is the strongest reading since April, as consumers are more upbeat about financial situation, less indebted and more likely to do major purchases.
The median estimate in a central bank poll of economists currently points to growth of 0.50 percent in 2017 (vs 0.34 percent back in July of 2017) and 2.00 percent in 2018 (unchanged from July). Analysts expect the Selic rate to end 2017 at 7.25 (vs 7.50 percent).