Central Bank of Brazil

January 16, 2013

Copom, Brazil’s monetary policy committee, left its Selic rate unchanged at a record low of 7.25%, where such has been since a 25-basis point cut in October and released a statement that acknowledged higher inflation but stressed that this development should be temporary.

Considering the balance of risks to inflation, which gets worse in the short term, the recovery of domestic activity, less intense than expected, and the complexity that also involves the international environment, the Committee believes that the stability of monetary conditions for a period of time long enough is the most appropriate strategy to ensure inflation convergence to the target.

Policymakers are in a difficult spot because, as noted, Brazil’s recovery is evolving more slowly than assumed, even as inflation has moved upward to 5.8%.  The inflation target is 4.5%, give or take two percentage points.  The World Bank’s new growth projection for Brazil is an annualized pace of 3.8% for the three years through 2015, including just 3.4% this year.

Last October’s Selic rate cut tenth and smallest reduction since August 2011.  The Selic rate previously crested at 12.5%.  The next Selic rate announcement will be on March 6.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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