By Lise Alves, Senior Contributing Reporter
SÃO PAULO, BRAZIL – The Central Bank (CB) of Brazil lowered the country’s benchmark interest rate (SELIC) by one percentage point on Wednesday, to the lowest level since January of 2014. The decrease, expected by market analysts, was the sixth consecutive reduction by the Bank that now places the SELIC at 10.25 percent per year.
The Monetary Policy Committee (COPOM) however noted that the increasing uncertainties regarding the political climate and the slow rhythm of reforms to be approved by Congress may lead to a slower reduction in the SELIC rate cut rate during the upcoming meetings.
“The COPOM points out that the extension of the cycle of monetary easing will depend, among other factors, on the structural interest rate estimates of the Brazilian economy,” said the statement released immediately after the end of the COPOM meeting.
The statement concluded by saying that “The committee understands that the recent increase in uncertainty associated with the evolution of the necessary reforms and adjustments in the Brazilian economy hinders the faster decline of structural interest rate estimates and makes them more uncertain. These estimates will continue to be re-evaluated by the committee over time.”
The SELIC is used by Brazil’s Central Bank to keep official inflation (IPCA) under control. In April, the IPCA stood at 0.14 percent, according to the IBGE (Brazilian Statistics Bureau). That is the lowest level in recorded history for the month.
In the twelve months ending in April, the IPCA accumulated an inflation rate of 4.08 percent, the lowest rate in twelve months since July 2007.
In the Central Bank’s latest Focus Report, market forecasts for the SELIC at the end of the year puts the benchmark interest rate at 8.5 percent.