Monetary Policy

BRAZIL ECONOMICS - Report 11 Dec 2017 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

The Central Bank cut the interest rate by 50 basis points to 7% at the last COPOM meeting of 2017, and signaled a residual reduction at the start of next year. The inflationary picture remains very benign, strengthening our belief that the interest rate will not be raised in 2018.

The communiqué issued after last week’s meeting clearly indicated that the Central Bank’s flight plan is for a residual cut of 25 basis points at the first monetary policy meeting of 2018. Our scenario is that after this cut, the SELIC rate will remain stable at 6.75% until the end of next year. We believe there is no need, at this stage of the cycle, for any additional stimulus from monetary policy. The easing cycle has already been substantial, taking the ex-ante real interest rate to a sufficiently stimulating level, with clear effects on the economic recovery and projections indicating that inflation is slowly moving toward the target.

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