Monetary Policy – The SELIC in the Easing Cycle Final Phases

BRAZIL ECONOMICS - Report 11 Nov 2019 by Affonso Pastore, Cristina Pinotti and Marcelo Gazzano

With 12-month inflation significantly below the lower bound of the target interval, all the core IPCA rates highly stable and below the target, inflation expectations anchored, and the economy still lethargic, the Central Bank reduced the SELIC rate to 5% and indicated that at the next COPOM meeting the rate would be cut further, to 4.5%. Based on all these facts, and the slow closing of the GDP gap, we believe there will be two more cuts of 25 basis points at the COPOM meetings at the start of 2020, after which it will stabilize at 4% a year.

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