Brazil interest rate expected unchanged at 14.25% p.a. at next policy meeting

Financial institutions heard by Brazil's Central Bank expect the benchmark interest rate (SELIC) to be maintained at 14.25% per annum at this week's meeting of the Central Bank's Monetary Policy Committee (COPOM) on July 19-20.

The SELIC rate is projected to be lowered to 13.25% p.a. by the end of this year. For 2017, the rate is expected to close out the year at 11% p.a.

COPOM may raise the SELIC rate from time to time to increase the cost of credit and stimulate savings, thus curbing demand. Conversely, it may lower interest to make credit cheaper and boost production and consumption, but this loosens inflation control. When it keeps the SELIC rate at its existing level, it has decided that previous interest increases have been enough to contain inflation.

The inflation rate is expected by the financial market to stand at 7.26% this year, above the upper target range of 6.5% set for this year. For 2017, financial institutions expect inflation to close out the year at 5.30%, below the upper target range of 6%, but still well above the target (set at 4.5% for both this and next year).

The financial institutions have narrowed their forecast for this year's Gross Domestic Product (GDP) decline from 3.30% to 3.25%. In 2017, the GDP is expected to grow 1.1%, up from the previous forecast of 1%.

These projections are in the latest edition, released today (Jul. 18), of the Focus Market Readout, a weekly report published Mondays by the Central Bank.

Translated by Mayra Borges

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