Brazilian Selic Interest Rate Maintained at 10.75%

December 9, 2010

COPOM, the interest-rate setting committee at the Bank of Brazil, failed to hike its benchmark interest rate further at the third consecutive meeting, matching decions made October 20 and August 31.  Before those meetings, three consecutive increases totaling 200 basis points were implemented on April 28, June 9, and July 21.  The next announcement is scheduled for January 19. 

In lieu of a rate increase at this time, the central bank last Friday announced sharp increases of its reserve requirements to 12% from 8% on cash deposits and to 20% from 15% on time deposits.  Although inflation accelerated to 5.5% in November from 5.0% in October and exceeds the 4.5% target, officials choose to study how the economy reacts to the reserve requirement increase, which is less likely than a rate hike to enflame inflows of yield-seeking foreign capital and put upward pressure on the Brazilian real.  On-year GDP growth settled back to 6.7% last quarter from 9.2% in 2Q but is seen likely to average a robust 7.5% in 2010.  In 2009, the Selic rate in Latin America’s largest economy was slashed from 13.75% to 8.75% in five moves between January and July.  Forty percent of that drop was reversed this year.  Further rate hikes in 2011 still seem probable.

Copyright 2010 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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