Brazil Reduces Selic by Another 0.75 Percentage Points

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – The Brazilian Central Bank’s Monetary Policy Committee (COPOM) announced on Wednesday evening it was lowering its benchmark interest rate (Selic) by 0.75 percentage points, to 12.25 percent, the lowest level since March of 2015.

The decrease however was not a surprise, since this movement was already expected by the majority of economic analysts.

“The cut was in line with expectations given the country’s floundering economy and rapidly easing price pressures,” says Angela Bouzanis, Senior Economist at FocusEconomics.

She adds “Looking forward, larger cuts could be in the pipeline if incoming economic data remain weak and if the government continues to make progress with fiscal reforms. Given the poor outlook for the economy, our panel of analysts sees the SELIC rate ending 2017 in single-digits, where it has not been since 2013.”

In the statement issued by the COPOM after the vote, the committee said that “the behavior of inflation remains favorable. The disinflation process is more widespread and indicates disinflation in the components most sensitive to the economic cycle and the monetary policy”.

The entity also hinted that if their forecasts are correct the Selic may fall further, by as much as three percentage points, until the end of the year.

“In the market scenario, COPOM projections fall to around 4.2 percent in 2017 and remain around 4.5 percent in 2018. This scenario incorporates a hypothesis of interest trajectory reaching 9.5 percent and nine percent [year] at the end of 2017 and 2018 respectively,” said the document.

The Selic is the main instrument of the Central Bank to keep official inflation under control. According to the IBGE (Brazilian Institute of Geography and Statistics), inflation (IPCA) in January of 2017 was at 0.38 percent, the lowest level recorded for the month since the series began in 1979. In the twelve months ending in January, the IPCA accumulates an inflation of 5.35 percent.