The Monetary Policy Committee (Copom) of Brazil’s Central Bank in Brasília today (Jun 18) is starting its fourth 2019 meeting to set the country’s benchmark interest rate—Selic—currently at 6.5 percent a year. Tomorrow (19), after the second part of the meeting, the rate will be unveiled.
The financial institutions surveyed by the Central Bank believe the Selic is going to remain at its current level after both this meeting and the next, to be held in August. As a result of the slowdown in the resumption of economic activity and the target of the country’s inflation, however, the benchmark interest rate is expected to be reduced this year.
“The trajectory of the current inflation and the expectations still near the target provide the basis for keeping the Selic at 6.5 percent a year at the next Copom meeting. In order to mitigate the volatility amid uncertainties, the option is appropriate until risks are more clearly defined. However, the considerable GDP gap [how much the economy is below its potential], reflected on the slowed-down resumption in the economy activity, may indicate room for an extra monetary stimulus [a lower Selic] later,” said Everton Pinheiro de Souza Gonçalves, superintendent for economic advisory of the Brazilian Association of Banks (ABBC).
Also according to the Central Bank’s survey on financial institutions, the Selic is believed to be kept at 6.5 percent a year in August, sink to 6.25 percent in September, then to 6 percent in October, and to 5.75 percent in December.
The financial market’s prediction for the growth of Brazil’s gross domestic product (GDP) stands at 0.93 percent. As per data from the government statistics agency IBGE, the GDP slipped 0.2 in the first quarter of this year from the last quarter of 2018. The reduction comes after hikes adding up to 0.5 percent in the third and 0.1 percent in the fourth quarter last year. More recent figures on the economic activity show a decline. In April, the Central Bank’s Economic Activity Rate (IBC-Br) showed a 0.47 percent reduction from March. It was the fourth consecutive month of decline.