Brazil Slashes Key Rate Further

The Central Bank of Brazil cut its key Selic rate by 25 basis points to 6.75 percent on 7 February 2018 following a 50-bps slash on 6 December2017. The cut, widely anticipated and unanimous, was the eleventh straight, bringing borrowing costs to the lowest in modern history amid below-target inflation and a gradually improving economy.

The statement underscored that set of indicators of economic activity released since the last Copom meeting shows consistent recovery of the Brazilian economy. It also mentioned inflation developments remain favorable. With these input, the Committee judged that economic conditions prescribe accommodative monetary policy, i.e., interest rates below the structural level. Regarding the next meeting, provided the Committee's baseline scenario evolves as expected, at this time the Copom views the interruption of the monetary easing process as more appropriate.

The central bank started its easing cycle in October of 2016 after the inflation rate eased from double digits. Consumer prices in Brazil increased 2.95 percent year-on-year in December of 2017, the most in six months, mainly driven by housing and transport costs. Still, the cumulative inflation for 2017 was 2.95 percent compared to 6.29 percent in 2016.

The economic recovery is still taking longer than initially expected, albeit improvements are now seen across the board. Industrial production rose 4.3 percent year-on-year in December and has booked positive numbers for the last eight months. Meantime, the jobless rate went down to 11.8 percent in the last quarter of 2017 from 12 percent in the three months to November, marking the lowest unemployment rate since October of 2016.

The median estimate in the last central bank poll of economists (2 February 2018) currently points to growth of 2.70 percent for 2018 (vs 2.69 percent four weeks ago) and of 3.00 percent for 2019 (vs 2.80 percent). Analysts expect the Selic rate to end 2018 at 6.75 percent (unchanged from four weeks ago).

Brazil Slashes Key Rate Further

Mario |
2/7/2018 8:43:07 PM