Brazilian Selic Rate Kept at Restrictive 14.25%

July 20, 2016

Between October 2014 and July 2015, Brazilian monetary policymakers increased interest rates by 325 basis points, but a year has now passed since policy has changed.  Under a new governor of the Central Bank of Brazil, the key Selic interest rate was left at 14.25% despite a half-percentage point reduction of consumer price inflation to 8.8% last month, and the vote not to loosen the stance just yet was taken unanimously by the monetary policy committee, Copom.  Concern was expressed about food price pressures slowing the descent of overall inflation and about the risk of excessive expected inflation given how long actual CPI inflation has far exceeded the 3.5-5.5% target range for this year. A hint of a possible rate cut still coming was signaled, nonetheless, by a slight reduction in the central bank’s projected 2017 inflation rate.  Policymakers do not have good choices.  While inflation remains far above target, real GDP has been contracting for the past two years at a rather sharp pace.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



Comments are closed.