Brazil Holds Interest Rate at 6.50%

The Central Bank of Brazil voted unanimously to hold its key Selic rate at 6.50 percent on September 19th 2018 as widely expected, keeping borrowing costs at the lowest level in modern history amid below-target inflation and slightly lower-than-expected growth in Q2.

Policymakers underscored the more gradual economic recovery pace than envisaged early this year. They also mentioned that the global outlook remains challenging, with reduction of risk appetite towards emerging economies. As for inflation risks, the board sees risks in both directions.

The central bank started its easing cycle in October of 2016 after the inflation rate eased from double digits. The annual inflation rate decreased to 4.19 percent in August 2018 from 4.48 percent in July and compared with market expectations of 4.3 percent. It was the lowest inflation rate since May, mainly due to slowing prices of transport and housing.

The economic recovery is still taking longer than initially expected, with recent data affected by strikes. GDP expanded 1.0 percent year-on-year in Q2, easing from a 1.2 percent rise in the previous quarter and missing market expectations of a 1.1 percent increase. It was the slowest expansion since the second quarter of 2017, as exports fell and household spending slowed triggered by May's truckers strike which paralyzed key sectors of the economy. 

The median estimate in the last central bank poll of economists (14 September 2018) currently points to growth of 1.36 percent for 2018 (vs 1.49 percent four weeks ago) and of 2.50 percent for 2019 (unchanged). Analysts expect the Selic rate to end 2018 at 6.50 percent (unchanged).

Brazil Holds Interest Rate at 6.50%

Mario |
9/20/2018 10:11:41 AM