Brazil’s Central Bank maintains basic interest rate at 10.5% per year
The recent rise in the dollar and increased economic uncertainty have led the Brazilian Central Bank to halt the interest rate cut it began nearly a year ago. The bank's Monetary Policy Committee (Copom) unanimously decided to maintain the Selic rate, the economy's basic interest rate, at 10.5 percent per year.
The decision to maintain the rate follows seven consecutive reductions by Copom. At the last meeting in May, the pace of cuts slowed down. From August last year to March this year, the committee had reduced the basic interest rate by 0.5 percentage points at each meeting. In May, the rate was cut by only 0.25 percentage points.
Unlike the previous meeting, which saw a split decision, this one was unanimous. In a statement, Copom explained that it decided to halt the cycle of interest rate cuts due to slower-than-expected disinflation, a challenging global scenario, and the financial market's dampened inflation expectations. The current situation, the statement noted, "calls for serenity and moderation in the conduct of monetary policy."
Inflation
The Selic is the Central Bank’s main tool for curbing Brazil’s official inflation, as gauged by consumer price index IPCA. In May, the indicator increased to 0.46 percent.
As a result, the indicator has accumulated a 3.93 percent increase over the past 12 months, moving further away from this year's target. For 2024, the National Monetary Council (CMN) has set an inflation target of 3 percent, with a tolerance margin of 1.5 percentage points. Therefore, the IPCA should not exceed 4.5 percent or fall below 1.5 percent this year.
The basic interest rate is used in government bond trading on the Special Settlement and Custody System (Selic) and serves as a benchmark for other interest rates in the economy.
