Central Bank signals gradual end of cycle of cuts in interest rate

The Monetary Policy Committee (COPOM), formed by the directors of the Central Bank, is expected to reduce the pace of cuts in the benchmark interest rate, the SELIC, and predicts the end of the cycle of reductions in the rate. The statement can be found in the minutes of the last committee meeting, released today (Sep 12).

On September 6, COPOM reduced the SELIC for the eighth consecutive time. The choice was made unanimously, and the rate went down one percentage point, from 9.25% to 8.25% a year.

The committee points out that the economic conditions allowed the preservation of the pace of flexibilization, but added that, should the basic scenario evolve as predicted, and due to the current stage of the cycle of flexibilization, the committee sees a moderate reduction in the magnitude of the monetary flexibilization and “foresees the gradual end of the cycle.”

Inflation

The committee argues that the fall in the price of foodstuffs and industrial goods may bring the inflation below the level projected. On the other hand, the committee adds, a frustration of expectations on the continuity of reforms under deliberation by Congress (the tax, pension and political overhauls) and the necessary adjustments in the Brazilian economy may raise inflation.

The bank directors also note that the market's forecast  for inflation stands at 3.4% this year and 4.2% in 2018.

Translated by Fabrício Ferreira