Brazil benchmark interest under 7% for first time

Brazil's Central Bank has lowered the country's benchmark interest rate (SELIC) for the 11th time in a row. The unanimous decision made by the Monetary Policy Committee (COPOM) saw the rate own 0.25 percentage points—from 7% to 6.75% per annum. The move comes as no surprise to analysts.

The decision brings the rate to the lowest level since the current time series was initiated by the Central Bank, in 1986. From October 2012 to April 2017, the interest had been retained at a yearly 7.25% and was gradually increased to 14.25% in July 2015. In October 2016, the committee started reducing the country's benchmark interest rate again until it reached 7% a year in December last year, the lowest value until then.

Despite today's slip, the Central Bank has slowed down its pace of reductions. From April to September, the COPOM had cut the SELIC by one percentage point. The pace of declines had dropped to 0.75 percentage points in October, 0.5 in December, and 0.25 today.

SELIC is the Central Bank's main tool for curbing the country's official inflation, as measured by the National Broad Consumer Price Index (IPCA). The IPCA closed out 2017 at 2.95%, slightly below the floor of the 3% target set for the inflation, according to official figures.  The IPCA for January will be made public tomorrow (8).

Up to 2016, Brazil's National Monetary Council had set the inflation target at 4.5%, with a margin of two percentage points. For 2017 and 2018, however, the council reduced the margin to 1.5. The inflation, therefore, must not rise above 6% or sink below 3% this year.

The shrinkage stimulates the economy, as low interest makes credit cheaper and encourage production as well as consumption against a backdrop of limited economic activity.

Translated by Fabrício Ferreira