Brazil Lowers Benchmark Interest Rate To 12.25%


The Central Bank of Brazil cut its key Selic rate by 75 basis points to 12.25 percent on February 22nd 2017, in line with market expectations. It is the fourth straight rate decline, bringing borrowing costs to the lowest in nearly 2 years amid slowing inflation and a sticky contraction. It follows a 75bps cut in January.

Policymakers said that the global outlook remains quite uncertain and that inflation developments remain favorable. It also highlighted the importance of approval and implementation of reforms (notably, the fiscal) for the sustainability of disinflation and for the reduction of the structural interest rate. The Copom's inflation forecasts retreated to around 4.2 percent for 2017, and remained around 4.5 percent for 2018. This scenario assumes a path for the policy interest rate that ends 2017 and 2018 at 9.5 percent and 9 percent, respectively.

The central bank started its easing cycle in October last year after the inflation rate eased from double digits. Inflation slowed faster than expected in the past four months due to subdued economic activity and a stronger real. Yet, the inflation fell to 5.35 percent in January, the lowest since September of 2012 and the real has been appreciating since December, strengthening 11.3 percent against the USD since then. 

Still, the economic recovery could take even longer than initially expected: the IBC-Br index of economic activity fell 0.26 percent in December after rising by 0.1 percent in November, the most in six months. The manufacturing PMI fell to 44 in January, reaching the lowest in seven months. On the positive side, business and consumer confidence have improved so far this year. The median estimate in a central bank poll of economists points to a 0.48 percent growth in 2017. 

Brazil Lowers Benchmark Interest Rate To 12.25%


Mario | mario@tradingeconomics.com
2/24/2017 9:24:49 AM