Pace of Brazilian Monetary Easing Moves to Higher Gear

January 11, 2017

Copom, the monetary policy committee, voted unanimously to reduce the Selic interest rate to 13.0% from 13.75%. This was the third cut since October but three times more sizable than the first two moves. Prior to the current round of easing, the Selic rate was increased from 7.25% in April 2013 to 11.0% a year later and a peak of 14.25% attained at the end of July 2015.

A released statement justifies picking up the pace of easing with several observations. First, growth lately has been weaker than expected, suggesting that recovery will begin later and be more gradual than assumed. Second, inflation has been more favorable than assumed previously, which isn’t surprising given the degree of economic slack. Third, expected inflation is firmly anchored, suggesting a pace of 4.8% this year. Finally, despite global uncertainty, “the end of the benign environment for emerging economies has had a limited impact so far.”

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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