Central Bank cuts benchmark interest to 3% a year

Amid the economic crisis stemming from the new coronavirus pandemic, the Brazilian Central Bank reduced the benchmark interest rate of the economy for the seventh time in a row. The authority unanimously decided to slash the Selic rate to three percent a year, down 0.75 percentage points.

The decision, made on Wednesday (6), brings the Selic to the lowest level since the beginning of this time series at the Central Bank, in 1986.

In a statement, the Central Bank reported that the Monetary Policy Committee is considering carrying out yet another cut, of up to 0.75 percentage points, at the next meeting, in June, adding that it expects more data to decide on the following steps. Two new Central Bank directors went as far as to suggest more aggressive cuts, but uncertainty over the impact of COVID-19 on the economy led most committee members to choose reducing the interest piecemeal, until the economic landscape is stabilized.

Inflation

The Selic is the main tool used by the Central Bank to curb the official inflation, as measured by the National Broad Consumer Price Index (IPCA). In the 12-month period ending in March, the indicator stood at 3.3 percent—the lowest result for a 12-month period since October last year.

The inflation, which had spiked late last year as a result of increased meat prices and the dollar, is now expected to drop more than expected because of interruption production and consumption brought about by COVID-19.

The benchmark interest rate is used in the negotiation of securities under the Special Clearance and Escrow System, or Selic, and serves to gauge the other interest rates in the economy.