The End of the Easing Cycle and the SELIC in 2018

BRAZIL ECONOMICS - Report 30 Oct 2017 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

As expected, the Central Bank cut the interest rate from 8.25% to 7.50% and clearly signaled the intention to lower it to 7.0% at the last COPOM meeting of 2017. There remains the doubt about a final cut of 25 points at the start of 2018, which will be determined by the upcoming data. But our estimate is that the SELIC rate will remain stable at 7% throughout 2018, even if the exchange rate weakens moderately. The risk is of a combination of frustrations in the political and fiscal adjustment fields with adverse alteration of the external picture.

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