Brazilian Central Bank’s Copom keeps basic interest rates at 13.75% per year

Despite the recent hike in inflation, the Central Bank (BC) did not change interest rates. By unanimity, the Monetary Policy Committee (Copom) maintained the Selic rate, the economy’s basic interest rate, at 13.75% per year.

Financial analysts expected the decision. The Central Bank Regulation Director, Otávio Damaso, did not attend the meeting.

The other directors and BC’s president, Roberto Campos Neto, voted to maintain the rate.

As in the last few times, Copom kept the warning that it may raise the Selic again if inflation does not fall as expected.

In a statement, the committee cited “the high uncertainty about the future of the country’s fiscal framework and additional fiscal stimulus” as factors that increase the risk of inflation rising.

On the other hand, it mentioned a possible fall in commodity prices (primary goods with international quotation) and a “sharper deceleration in the global economy” as elements that can push inflation down.

The rate remains at the highest level since January 2017, when it was also at 13.75% per year.

This was the third time in a row that the Central Bank did not change the rate, which has remained at this level since August. Previously, Copom had raised the Selic 12 consecutive times in a cycle that began amid rising food, energy, and fuel prices.

INFLATION

The Selic is the Central Bank’s main instrument to keep official inflation under control, as measured by the National Wide Consumer Price Index (IPCA).

In October, the indicator closed at 6.47%, 12-month accumulated.

This was the first month of positive inflation after three consecutive deflations, motivated by the rise in fuel and food prices.

Despite the IPCA slowdown from July to September, the figure is above the inflation target ceiling.

For 2022, the National Monetary Council (CMN) set an inflation target of 3.5%, with a tolerance margin of 1.5 percentage points.

The IPCA, therefore, could not exceed 5% this year nor fall below 2%.

In the Inflation Report released at the end of September by the Central Bank, the monetary authority estimated that the IPCA would close 2022 at 5.8% in the base scenario.

However, the projection may be revised depending on the evolution of fuel prices in the year’s final quarter. The new version of the report will be released in late December.

Market forecasts are less optimistic. According to the Focus bulletin, a weekly survey of financial institutions released by the Central Bank, official inflation should close the year at 5.92%.

At the beginning of June, market estimates reached 9%.

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