Brazil Holds SELIC Rate at 14.25%

The Central Bank of Brazil left its key interest rate unchanged at 14.25 percent for the eighth consecutive time on July 20th, amid political uncertainty and high inflation expectations. The decision was widely expected by markets, as policymakers aim to bring inflation back to target despite a deep economic recession.

The interest rate remained at its highest level in ten years for the eight consecutive meeting, as the central bank struggles to curb rising inflation amid severe contraction. However, now it faces calls from Brazilian business to cut rates to boost the economy.

Although inflation rate slowed recently to a 13-month low of 8.84 percent reached in June, it remained well above the central bank's mid-point target of 4.5 percent, lowering the possibilities for interest rate cuts in the short-term. Inflation will most likely end the year above the official target range of between 2.5 and 6.5 percent, but the central bank has vowed to do whatever is necessary to reduce it to the center of the target in 2017. 

The forecast for the SELIC rate at end-2016 is 13.25 percent, with the prediction for next year at 11 percent, according to the latest FOCUS Market Readout released by the central bank on July 15th. Inflation expectations reached 7.26 percent for 2016 and 5.30 percent for 2017 while the economy is expected to contract by 3.25 percent in 2016 and to grow by 1.10% next year.

Brazil Holds SELIC Rate at 14.25%

Joana Ferreira |
7/20/2016 10:18:35 PM