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Brazil’s Central Bank keeps interest at all-time lowest

The Selic was set at 6.5% a year for the tenth time in a row

Published in 21/06/2019 - 11:52

By Wellton Máximo Brasília

For the tenth time in a row, the Brazilian Central Bank decided not to change the country’s benchmark interest rate—the Selic. The Monetary Policy Committee (Copom) kept the Selic at 6.5 percent a year. The move had been expected by financial analysts.

The decision was made on Wednesday (Jun 19) and has the Selic at its lowest level since 1986, when the current time series began. From October 2012 to April 2013, the rate was held at 7.25 percent a year and was gradually changed until it reached 14.25 percent a year in July 2015. In October 2016, Copom once again started lowering the rate until it stood at 6.5 percent a year, in March 2018.

According to a note released by Copom, the Central Bank is expected to once again reduce the interest rate after the advance or approval of reforms that reduce public spending, like the pension reform. “The committee also stressed the perception of continuity of the agenda of reforms affects the current macro-economic expectations forecasts.

Curbing inflation

Selic is the Central Bank’s main tool for keeping the official inflation rate under control. Brazil’s National Monetary Council (CMN) set the inflation target at 4.25 percent, with a tolerance margin of 1.5 percentage points, for 2019. The National Broad Consumer Price Index—the IPCA, which gauges Brazil’s official inflation rate—must not go beyond 6.75 percent this year or sink below 2.75 percent. The 2020 target was set at four percent, also with 1.5 percentage points as the tolerance gap.

Cheaper credit

Reducing the Selic rate stimulates the economy, as lower interest make credit cheaper and encourage production and consumption when economic activity is low. In its last inflation readout, the Central Bank predicted a two percent growth in the country’s economy this year. According to the Focus report, economic analysts predict a 0.93 percent increase in the gross domestic product in 2019.

Translation: Fabrício Ferreira Edition: Augusto Queiroz

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