Central Bank lowers Brazil’s benchmark interest to 10.5% per year
The recent rise in the dollar and increased uncertainties have led the Brazilian Central Bank to slow down the pace of cuts in interest rates. By five votes to four, the bank’s policy committee reduced the Selic—the country’s benchmark interest rate—by 0.25 percentage points, down to 10.5 percent per year, its lowest since February 2022, when it reached 9.75 percent.
This was the seventh time in a row the committee has opted for a reduction. However, cuts have come at a slower pace. From August last year to March this year, the financial institution lowered the rate by 0.5 percentage points at each meeting.
In a statement, committee members claim the international landscape has worsened, adding that underlying inflation, eliminating more volatile prices, is above the inflation target. In addition, the statement argues for “a credible fiscal policy committed to debt sustainability” that helps “anchor inflation expectations and reduce risk premiums on financial assets, thereby impacting monetary policy.” This time, the bank gave no indication as to what it will do at the next meetings.
Inflation
The Selic is the Central Bank’s main tool for curbing Brazil’s official inflation, as gauged by consumer price index IPCA. In March, the indicator stood at 0.16 percent and is up 3.93 percent in 12 months.
The 12-month figure is right at the ceiling of the inflation target. For 2024, the National Monetary Council has set an inflation target of three percent, with a tolerance margin of 1.5 percentage points. The IPCA, therefore, should not exceed 4.5 percent or sink below 1.5 percent this year.
