Change in the Monetary Policy Signal

BRAZIL ECONOMICS - Report 30 Nov 2015 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

Although keeping the SELIC rate at 14.25% a year, the Central Bank signaled that it might return to a tightening cycle. At the last COPOM meeting, two directors voted for a hike of 0.5 percentage point, and the communiqué omitted the previous comment that the interest rate would be maintained “for a long period”. The Bank’s main worry is the evolution of inflation expectations, which are currently above the upper bound of the target interval for 2016 and higher than 4.5% – and growing – for 2017. Under normal conditions, no doubts would exist of the need to hike, but current conditions are far from normal.

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