Wednesday, 30 October 2019

Copom reduces basic interest rates of the Brazilian economy to the lowest level in history: 5% per year; the rate is expected to continue to be reduced at future meetings

For the third time in a row, in a decision that was already expected by financial analysts, the Brazilian Central Bank (BC) lowered the basic interest rates of the economy. Unanimously, the Monetary Policy Committee (Copom) reduced the Selic rate to 5% per year, with a 0.5 percentage point cut.

With today's decision, Selic reached its lowest level since the beginning of the Central Bank's historical series in 1986. From October 2012 to April 2013, the rate was maintained at 7.25% per year and has now been readjusted. gradually until it reached 14.25% per annum in July 2015. In October 2016, the Copom again reduced the basic interest rates of the economy until the rate reached 6.5% per annum in March 2018. Now the country reached 5% per annum.

At the meeting of the Monetary Policy Council (Copom) of the Brazilian Central Bank, which took place today, a new 0.50 pp cut in the Selic rate was practically anticipated at the next meeting, in December 2019. The Copom also introduced, in the balance sheet risks, the lagged effects of the stimulating monetary policy (upward risk of inflation) and mentioned that the current stage of the economic cycle recommends caution in any further adjustments in the degree of the stimulus.

The minute of the Copom meeting also pointed to projections for the 2020 IPCA between 0.30 pp and 0.40 pp below the 4.0% target. Therefore, the Selic terminal is expected to be between 4.0% and 4.5% in the coming months. More cuts thus likely as reforms go through, according to the Copom minute. 

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