Central Bank keeps benchmark interest at 2% a year

After a long spell on the wane, the Central Bank decided to keep the benchmark interest rate of the economy at the current two percent a year. The decision of the Monetary Policy Committee (Copom) was unanimous at the meeting ending Wednesday (Sep. 16). The decision to retain the rate at this level, the lowest since 1986, was expected by financial analysts, who believe the Selic is likely to remain at this value until the year is over.

In a note, Copom announced the inflation is expected to rise in the short run, especially as a result of the temporary hike in food prices and the partial normalization in the price of some services, as part of the resumption of the economic activity. “The committee understands this decision [of maintaining the Selic as it is] reflects its basic backdrop and a balance in risks with more fluctuation than usual for prospective inflation. The [move is thought to be] compatible with the convergence of the inflation towards the target on the relevant horizon, which includes the year 2021, and, to a lower extent, 2022,” an excerpt of the note says.

On future adjustments to the benchmark rate, the committee mentioned that any possible changes will take place piecemeal and hinge on how public accounts are performing. “The economic landscape continues to require a monetary stimulus extraordinarily elevated, but we acknowledge that, due to prudential issues and issues of financial stability, the remaining space for the use of the monetary policy, if any, must be small,” the communication reads.

Inflation

Selic is the main tool used by the Central Bank to curb the official inflation, as gauged by Brazil’s National Broad Consumer Price Index (IPCA). The indicator closed out the 12 months ending in August at 2.44 percent. The rate had been facing a slowdown since July, but is still below the minimum level of the target set by the National Monetary Council (CMN), which is four percent this year with a tolerance margin of 1.5 percent.

The target for 2021 was fixed at 3.75 percent, also with a tolerance interval of 1.5 percentage points, plus or minus.