Monetary Policy: No surprises for now

BRAZIL ECONOMICS - Report 29 Oct 2018 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

At the next COPOM meeting the Central Bank should keep the SELIC rate at 6.5%, with the communiqué and minutes repeating two warnings that have been expressed repeatedly. The first refers to the changes that have been occurring in the international scenario, which is not as favorable as it was until the start of this year. The second, and most important, is the urgent need for the government to strive for fiscal consolidation, through structural reforms that eliminate the unsustainable growth of the public debt. If the new government succeeds in the fiscal policy field, removing uncertainties and creating stimuli to gross fixed capital formation, it is possible the SELIC rate will remain where it is until mid-2019. The start of a solid fiscal consolidation is a basic condition to provide some degrees of freedom in the execution of monetary policy. Without this, not even the formal independence of the Central Bank will be able to assure success in the task of controlling inflation.

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