Central Bank retains benchmark interest at 2% a year

Amid an increase in food prices that is seen to spill over to other sectors, the Central Bank (BC) decided not to adjust the Brazilian economy’s benchmark interest rate. The Monetary Policy Committee (COPOM) unanimously chose to keep the Selic rate at two percent a year for the fourth time in a row.

In a statement, COPOM announced that the inflation faces risks that could lead to an increase as well as a decline. The spike in commodity prices, the monetary authority reported, and the pricey dollar pushed the inflation early this year. On the other hand, the level of idleness in the economy and the rise in the number of COVID-19 cases slash demand and pull prices down.

The decision made Wednesday (20) brings Selic to the lowest level since the beginning of this time series for the Central Bank, initiated in 1986. Keeping the rate low stimulates the economy as lowest interest makes credit cheap and encourage production and consumption in a scenario of low economic activity. In the latest Report on Inflation, the Central Bank estimated a 3.8 percent growth for the economy in 2021. The projection may be revised in future reports, released every three months.

Inflation

Selic is Central Bank’s main tool for curbing the official inflation, as gauged by the National Broad Consumer Price Index (IPCA). The indicator closed out 2020 at 4.5 percent, above the center of the target—four percent, as set by the National Monetary Council (CMN), with a margin of tolerance of 1.5 percentage points. The IPCA, however, could not surpass 5.5 percent this year or go below 2.5 percent. The target for this year was fixed at 3.75 percent, also with a tolerance interval of 1.5 percentage points.