Brazil Slashes Key Rate By 75 Bps to 7.50%

The Central Bank of Brazil slashed unanimously its key Selic rate by 75 basis points to 7.50% percent on October 25th of 2017 following a 100-bps trim in September 6th of 2017. The cut, widely anticipated, was the ninth straight, bringing borrowing costs to the lowest since March 2013 amid plunging inflation and a slow recovery.

The statement underscored that the global outlook has been favorable; the baseline inflation scenario has evolved as expected and that expectations have adjusted downwardly; and the balance of risks involves risks in both directions, with possible second-round effects of the favorable food price shock and of low current levels of industrial goods mentioned in first place. 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 2.54 percent year-on-year in September of 2017, slightly higher than a 2.46 percent rise in August which was the lowest inflation rate since February of 1999. It compares with market expectations of 2.47 percent. It was the first rise in inflation rate since August of 2016 amid higher prices for transport.

The economic recovery is still taking longer than initially expected, albeit recent improvements seen lately. Industrial production increased 4 percent in August of 2017 over the same month in the previous year. It has remained on positive ground for four straight months. Meanwhile, the IBC-Br index of economic activity rose 1.5 percent year-on-year. Furthermore, considering the January to September period, car production grew 27 percent compared with the same period of 2016.

The median estimate in a central bank poll of economists currently (October 20th of 2017) points to growth of 0.73 percent in 2017 (vs 0.50 in the previous meeting) and 2.50 percent in 2018 (vs 2.00 percent). Analysts expect the Selic rate to end 2017 at 7.00 percent (vs 7.25 percent).

Brazil Slashes Key Rate By 75 Bps to 7.50%

Mario |
10/25/2017 9:32:14 PM