Economy

Brazilian economy gained momentum, Central Bank says

Economic growth is expected to speed up in the coming quarters

Kelly Oliveira

Published on 17/12/2019 - 11:32

Brasília

The Central Bank concluded that the Brazilian economy gained momentum, and, to retain its gradual growth the bank’s Monetary Policy Committee decided to cut the country’s benchmark interest rate—the Selic—by 0.5 percentage points to 4.5 percent a year. This is the lowest level since 1986, when the indicator was first monitored.

The minutes for the last committee meeting was released today (Dec. 17) and further reports that “the coming quarters should exhibit some acceleration, to be boosted by the stimuli from the funds released from the FGTS [Guarantee Fund for Length of Service] and the PIS-Pasep [programs for Social Integration and Formation of Property of Civil Servants], with a more significant impact in the last quarter of 2019,” the committee reported.

The government estimates that FGTS withdrawals may inject some $9.8 billion into the economy by the end of the year.

Private sector

The committee also identified a lower participation of the state in the economy and a possible impact on the Central Bank’s leeway in the monetary policy—essentially regarding the setting the Selic rate. According to the Central Bank, free credit has gained more ground, there is more participation from free credit, where banks are autonomous to lend money from the market and set their interest rates. Under directed credit, there is less participation of the loans from the country’s National Economic and Social Development Bank (BNDES). In this category, loans are governed by rules laid forth by the government and are mostly earmarked for housing, farming, and infrastructure.

“Copom members believe the transformations in the credit and capital markets tend to increase the power of the monetary policy,” the Central Bank stated.

Next steps

The committee concluded that acting cautiously is necessary in the conduction of the monetary committee in the current economic cycle, adding that the next steps will also hinge on the progress of economic activity and the estimates for risk and the inflation.