Central Bank keeps benchmark interest at 10.5% a year

The Brazilian Central Bank’s Monetary Policy Committee (Copom) on Wednesday (Jul. 31) unanimously decided to maintain the Selic rate—the country’s benchmark interest rate—at 10.5 percent a year.

At the previous meeting, in June, the committee had interrupted its cycle of interest rate cuts that began nearly a year ago. From August last year to March this year, Copom had reduced the rate by 0.5 percentage points at each meeting. In May, it had been lowered 0.25 percentage points.

In a statement, the committee said the decision was motivated by the adverse external environment and by the combination of indicators of economic activity and the domestic labor market, which continue to be more dynamic than expected.

“The Committee unanimously decided to keep the interest rate unchanged, noting that the uncertain global landscape as well as the domestic landscape marked by resilient activity, rising inflation projections, and unanchored expectations, require diligent monitoring and even greater caution,” the text reads.

The move aims to consolidate disinflation. “Monetary policy must remain contractionary for long enough at a level that consolidates not only the disinflation process but also the anchoring of expectations around the target,” it says.

The Committee pledged to remain vigilant and further reiterated that any future adjustments should be dictated by the firm commitment to converging inflation to the target.

Inflation

The Selic is the Central Bank’s main tool for curbing Brazil’s official inflation, as gauged by consumer price index IPCA. In June, the IPCA rose by 0.21 percent, down from May’s 0.46 percent.

Year to date, the IPCA was up 2.48 percent, compared to 4.23 percent over the last 12 months—up from 3.93 percent in the previous 12 months.

For 2024, the National Monetary Council has set an inflation target of three percent, with a tolerance margin of 1.5 percentage points up or down.

According to the Inflation Report released in June by the Central Bank, inflation is likely to stand at four percent in 2024. Meanwhile, as per the Focus readout, a weekly survey of financial institutions published by the Central Bank, official inflation should close out the year at 4.1 percent.