Brazil benchmark interest rate cut to 7% a year, lowest level in history

For the tenth time in a row, the Brazilian Central Bank reduced the country's benchmark interest rate, the SELIC. The Monetary Policy Committee (COPOM) reduced today the rate from 7.5% to 7% per annum. The decision had been expected by analysts.

The move brings the SELIC to the lowest level in this time series, initiated by the Central Bank in 1986. From October 2012 to April 2013, the rate was kept at a yearly 7.25%, the previous lowest value in history, and was subsequently gradually adjusted until it reached 14.25% per annum in July 2015. Only in October last year, did COPOM once again reduced the economy's benchmark interest rate.

Despite the lowering, the Central Bank has loosening up its monetary policy less. From April to September, the Committee had cut the rate by one percentage point. The reduction was 0.75 percentage points in October and 0.5 today. In a note, the Central Bank stated that the inflation is behaved as expected and indicated that it may continue to reduce interest in the next COPOM meeting, slated for late January.

Selic is the main rate used by the Central Bank to curb the official inflation, as measured by the National Broad Consumer Price Index (IPCA). The IPCA stood at 0.42% in October, as reported by the Brazilian Institute of Geography and Statistics (IBGE). In the 12-month period ending in October, the rate is 2.7%, therefore below the floor of the target set for the inflation—3%.

Up to last year, the National Monetary Council (CMN) set the inflation target at 4.5%, with a tolerance margin of two points, and a maximum of 6.5%. For this year, CMN reduced the margin to 1.5 percentage points. The inflation, therefore, must not be above 6% or below 3%.

Translated by Fabrício Ferreira