The central bank of Brazil lowered its benchmark SELIC rate by 25bps to 14 percent on October 19th 2016. It is the first rate cut in four years amid a severe contraction and signs of slowing inflation.
The decision came in line with market expectations.
The central bank said recent indicators suggest economic activity below expectations in the short-term although it expects a gradual recovery. Industrial production fell 3.8 percent in August from July, the biggest drop since January of 2012 and retail sales were down 0.6 percent for the second straight month in August. The GDP shrank 0.6 percent on quarter in the three months to June of 2016, the sixth straight quarter of contraction.
Policymakers also said recent inflation data came more favorable than expected due to lower food prices. Yet, it slowed to 8.48 percent in September, the lowest in sixteen months. Inflation forecasts for 2016 were lowered to 7 percent and were also cut to 4.3 percent in 2017 and 3.9 percent in 2018. The central bank added that the inflation convergence to target is compatible with moderate and gradual easing of monetary conditions although further rate cuts will depend on factors that raise confidence the inflation will converge to target. The central bank targets inflation at 4.5 percent ± 2 percent.
10/19/2016 8:57:37 PM