Brazil Leaves Monetary Policy Unchanged

The Central Bank of Brazil voted unanimously to hold its key Selic rate at a record low of 6.50 percent on May 8th 2019, as widely expected. Policymakers said that the decision is consistent with the convergence of inflation to the target range and will continue to depend on the evolution of economic activity, inflation outlook and balance of risks. The Committee added that developments of the reform agenda will affect current expectations and macroeconomic projections.

The Committee underscored that recent data on economic activity indicate a halt in the process of economic recovery in the past quarters. It judged that the decision reflects its baseline scenario for prospective inflation and the associated balance of risks, and is consistent with convergence of inflation to target over the relevant horizon for the conduct of monetary policy, which includes 2019 and, with gradually increasing weight, 2020. The Copom reiterated that economic conditions prescribe stimulative monetary policy, i.e., interest rates below the structural level.

The central bank started its easing cycle in October of 2016 after the inflation rate eased from double digits. The inflation rate finished 2018 within the central bank target of 4.5 percent plus or minus 1.5 percentage points and above 2.95 percent in 2017. It currently remains on target. The annual inflation rate in Brazil fell to 4.66 percent in May 2019 from 4.94 percent in the previous month and below market expectations of 4.72 percent.

The economic recovery is still taking longer than initially expected, with recent negative data. The Brazilian economy shrank 0.2 percent on quarter in the first quarter of 2019, slowing from a 0.1 percent expansion in the previous period and in line with market. It was the first contraction since the last quarter of 2016. Furthermore, the latest central bank’s Focus survey of market expectations (14 June 2019) pointed to lower GDP growth forecasts for 2019, lower to 0.93% from 1.24% four weeks ago.

Brazil Leaves Monetary Policy Unchanged

Mario |
6/19/2019 9:31:46 PM