Brazil Plans to Aggressively Reduce Interest Rates

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – Although still very dependent on inflation behavior and economic activity in the months ahead, Brazil’s Central Bank (CB) has indicated that it plans to continue to cut aggressively the country’s benchmark interest rates (SELIC). The CB’s Monetary Policy Committee (COPOM) surprised markets last week after deciding to unanimously reduce the SELIC by 0.75 percentage points.

“The decision to intensify [the reduction] was based on the evidence from the past few months that basically pointed out that we could sustain not only 0.50 percentage point [decrease] but 0.75 [percentage point],” Central Bank President Ilan Goldfajn told reporters on Wednesday in a press conference in Davos, Switzerland.

Economists, however, say that a lot can happen between now and the next COPOM meeting, which is scheduled for February 22nd. “Most immediately, the inauguration of Donald Trump on Friday is a potential flashpoint,” says Edward Glossop, emerging markets economist at Capital Economics.

“More generally, as the focus shifts to what policies Mr. Trump might pursue, currencies from emerging markets [including the real] could come under renewed pressure,” adds Glossop, stating that Trump’s plans could lead some COPOM members to push for less aggressive easing of the SELIC.

Yet while the world waits for U.S. President-elect Trump to announce his policies, Brazilian Finance Minister, Henrique Meirelles says the country’s economy is recovering and the acceleration of the reduction of the SELIC will help the country grow in 2017.

“With the lower interest rate, we will be able to reduce the cost of credit more and more, making it easier and cheaper for consumption and investment,” Minister Meirelles stated during an interview with Agencia Brasil.