Brazil Slashes Key Rate to Record Low

The Central Bank of Brazil slashed its key Selic rate by 50 basis points to 7.00 percent on December 6th of 2017 following a 75-bps trim on October 25th of 2017. The cut, widely anticipated and unanimous, was the tenth straight, bringing borrowing costs to the lowest in modern history 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, at this time the Copom views an additional moderate reduction of the pace of easing as appropriate. 

The central bank started its easing cycle in October of 2016 after the inflation rate eased from double digits. Consumer prices increased 2.7 percent year-on-year in October of 2017, above 2.54 percent in September and compared to market expectations of 2.75 percent, mainly due to rising electricity cost. Inflation went up for the second month after touching 2.46 percent in August, the lowest since 1999.

The economic recovery is still taking longer than initially expected, albeit recent improvements seen lately. Industrial production rose 5.3 percent year-on-year in October of 2017, compared to a downwardly revised 2.5 percent increase in the previous month. It was the sixth consecutive expansion and the highest since April of 2013. Also, the employment rate increased to 54.20 percent in October from 54.10 percent in September of 2017, linking its seventh straight monthly improvement. 

The median estimate in a central bank poll of economists currently (December 1st of 2017) points to growth of 0.89 percent in 2017 (vs 0.73 in the previous meeting) and 2.60 percent in 2018 (vs 2.50 percent). Analysts expect the Selic rate to end 2017 at 7.00 percent (vs 7.00 percent).

Brazil Slashes Key Rate to Record Low

Mario |
12/7/2017 9:46:05 AM