Central Bank cuts Brazil’s benchmark interest to 4.25% a year

Brazil’s Central Bank for the fifth consecutive time has lowered the economy’s benchmark interest rate, known as Selic, to 4.25 percent a year, down 0.25 percentage points. The rate serves as a reference for other interest rates in the economy.

The Wednesday (Feb. 5) move brings the value to the lowest since the beginning of this time series, in 1986.

In a statement, the bank declared it plans to interrupt the cuts in the interest, as it understands that the current stage in the economic cycle recommends caution in the conduction of the monetary policy, which is why it “sees as adequate the interruption in the process of monetary flexibilization.”

The bank also advocated the structural reforms in the Brazilian economy so as to reserve interest levels low for a long time.

Inflation

The Selic is the main tool used by the Central Bank to curb the country’s official inflation, as gauged by the National Broad Consumer Price Index, or IPCA. The indicator closed out 2019 at 4.31 percent, the highest annual result since 2016. The inflation was pulled by the increase in the dollar and a hike in meat prices, but is still below the target’s ceiling.

For 2020, the National Monetary Council (CMN) set the target for the inflation at four percent, with a tolerance margin of 1.5 percentage points. The IPCA, therefore, may not go beyond 5.5 percent this year or sink below 2.5 percent. The target for 2021 has been fixed at 3.75 percent, also with a tolerance margin of 1.5 percentage points.