Monetary Policy

BRAZIL ECONOMICS - Report 31 Jul 2017 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

Last week the Central Bank cut the interest rate by 1 percentage point, to 9.25%. Its communiqué made it clear that there is still room for a significant further reduction of the SELIC rate, without jeopardizing the inflation target for 2018. Our projection is that the interest rate will fall to 7.5% by the end of 2017. There are two risks in this forecast. The first is a reversion of the low risk aversion and high liquidity in the international financial market, causing an outflow of capital from emerging countries and depreciating the real. The second is the worsening of the domestic political crisis.

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