Brazil to Get a Prolonged Central Bank Interest Rate Plateau

November 28, 2012

Copom, the Central Bank of Brazil’s monetary policy committee, had cut the Selic rate at ten straight meetings by a total of 525 basis points to 7.25%.  The last of those reductions announced October 10th was the also the smallest, just 25 basis points, and it was accompanied by a pledge to keep policy stable at that level for “a sufficiently prolonged period of time.”  After today’s subsequent meeting, Copom made a first gesture of good faith on that promise, leaving the Selic rate at 7.25%, and the solidarity of this commitment was embodied by a unanimous vote and a reaffirmation not to change policy again for “a sufficiently prolonged period of time.”  Brazilian consumer price inflation of 5.4% in the year to October is not far from the ceiling of the central bank’s target range of 2.5% – 4.5%.  Quarterly GDP growth of 1.6% at an annualized rate in the second quarter suggests that the worst may be behind, but the year-over-year pace of 0.5% underscores the fragility of the recovery and why there may not be a rate hike for another year or more.  Indeed, if growth takes a renewed turn for the worse, one can’t rule out the possibility of another policy ease, but that’s not the baseline thinking of officials, who at the moment need to pay more attention to inflation as well.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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