COPOM’s correct decision

BRAZIL ECONOMICS - Report 25 Jun 2018 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

Despite the upward shift and steeper slope of the yield curve, the Central Bank’s decision to keep the SELIC rate at 6.5% did not cause any negative reaction from economists, who almost unanimously anticipated this action. The appreciation of the dollar has caused the real to depreciate, a reaction that has been accentuated by the combination of fiscal and political risks and the virtually hysterical reactions during the truckers’ strike. However, the huge slack capacity in the economy prevents a more pronounced pass-through to prices. GDP growth, for which the projections were already falling before the most recent crisis, will be even weaker. Besides this, the migration, albeit temporary, of the risks to the short end of the yield curve has raised the one-year real interest rate. This, together with the effect of the increased risks regarding credit and the weaker exchange rate, has worsened the financial conditions, acting as a further brake on the economy and reducing the risks of higher inflation. Since the SELIC rate in real terms is below the neutral level, there are no doubts that the next monetary cycle will be to tighten, but this should occur over a much longer horizon than indicated by the yield curve.

Now read on...

Register to sample a report

Register
Sign-in
Forgot your password?
Copyright 2024 GlobalSource Partners. All rights reserved. This report is prepared for GlobalSource Partners’ clients and may not be redistributed, reproduced, stored in a retrieval system, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of GlobalSource Partners. This report is distributed simultaneously to our website and other portals used by GlobalSource Partners. The information herein was obtained from various sources and is believed to be reliable but GlobalSource Partners does not warrant its completeness or accuracy. Neither GlobalSource Partners nor any Country Analyst, officer or employee accepts any liability whatsoever for any direct, indirect or consequential damages or losses rising from any use of this report or its contents.