Brazil Cuts Interest Rate to 6.75 Percent, Lowest in History

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – Brazil’s Central Bank (BC) announced on Wednesday it was lowering the country’s benchmark interest rate (Selic) for the eleventh consecutive time, by 0.25 percentage point, from 7 percent to 6.75 percent a year. With the reduction, the Monetary Policy Committee (Copom) has placed the Selic at its lowest level in history.

In a note released immediately after the Selic announcement, however, the Copom stated that if the current scenario holds and the much-needed reforms are not approved by Congress in the next 40 days, the Committee would halt any further reductions in the interest rate.

“For the next meeting, if the basic scenario evolves as expected, the committee sees as more appropriate the interruption of the process of monetary easing.” said the Copom statement.

Despite Wednesday’s reduction, the Central Bank has been decreasing the rhythm of the Selic reduction since September of 2017. From April to September of 2017, the Copom reduced the Selic by 1 percentage point. The reduction rhythm rate fell to 0.75 point in October, 0.5 point in December and 0.25 point in Wednesday’s meeting.

The reduction of the Selic stimulates the economy since lower interest rates leads to cheaper credit and encourages production and consumption. According to the last week’s Focus bulletin, economic analysts are forecasting a 2.7 percent growth in the country’s GDP this year and inflation is expected to close the year at 3.94 percent.

The Copom established inflation target for 2018 at 4.5 percent per year, with a 1.5 percentage point leeway either up or down.