Brazil Central Bank lowers benchmark interest rate to 13.75% p.a.

The Monetary Policy Committee (COPOM) at Brazil's Central Bank announced their unanimous decision to reduce Brazil's bank rate (SELIC) by a further 0.25%, lowering it from the existing 14% to 13.75% per annum. The decision was made Wednesday (Nov. 30).

In its post-meeting statement, the Central Bank said inflation had behaved “more favorably than expected” in recent times partly thanks to decreasing food prices.

Among other factors, COPOM has also pointed out forecasts for 2016 inflation have been revised down and are now around 6.6%. The estimate for 2017 is around 4.4% in the scenario projected by the Central Bank, and 4.7% in the scenario projected by the financial market. For 2018, projections are around 3.6% and 4.6% respectively.

The Committee also said the steps taken toward approving fiscal reforms have been positive so far.

Last month, COPOM had already cut the SELIC rate by 0.25 percentage points, the first decrease in four years.

Inflation control

As the main instrument used by the Central Bank to control inflation, the benchmark interest rate is used for trading government securities under the Special System of Settlement and Custody (SELIC). The COPOM may increase interest to curb buoyant demand levels, which influences prices by increasing the cost of credit and stimulating savings. Conversely, when COPOM lowers benchmark interest rates, it makes credit cheaper, which encourages production and consumption, but inflation control is relaxed. When it maintains the interest rate unchanged, the Committee has considered that previous changes have successfully met the goal of controlling inflation.

Translated by Mayra Borges