Central Bank Rate Cuts in Brazil and Chile of 50 Basis Points and 100 Basis Points
January 31, 2024
A short list of central bank interest changes during January up to the 30th had included Israel, Peru, Kazakhstan and Turkey, but four other joined the club on the final day of the month. Cuts of 50 basis points at the National Bank of Georgia and 25 bps at the Central Bank of Colombia have been discussed in earlier postings. The Brazilian and Chilean reductions were announced late today.
Brazil’s Selic interest rate was sliced to 11.25% from 11.75%. From a zenith of 13.75% maintained from October 2022 until August 2023, the rate was cut in each of the final five months of last year by a total of three full percentage points. The 13.75% level had been necessitated to contain Brazilian consumer price inflation that had soared to 12.1% in April 2022. Hard to believe, but the Selic rate’s pandemic low of 2.0%. First reached in August 2020, 2.0% had been maintained until March 2021. The rate was lifted by 725 bps over the rest of that year and a further 450 bps by August 2022. CPI inflation has meanwhile slowed to 4.62% by last month and 4.47% in the first half of January. According to today’s Central Bank of Brazil statement, “the Committee members unanimously anticipate further reductions of the same magnitude in the next meetings, and judge that this pace is appropriate to keep the necessary contractionary monetary policy for the disinflationary process.”
In Chile, CPI inflation peaked at 14.1%, a 362-month high, in August 2022 but decelerated subsequently under the weight of monetary restraint and favorable external developments to 4.8% last November and 3.9% last month. The Central Bank of Chile‘s key interest rate was lifted from a pandemic low (prevailing from March 2020 until July 2021) to 4.0% by end-2021 and 11.25% by October 2022. The current cycle of rate reduction began in July 2023. By December, the rate had fallen to 8.25%, and the size of today’s full percentage point cut to 7.25%, although larger than any of the 2023 cuts, had been anticipated by analysts.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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