The signals from the Central Bank: What can be expected?

BRAZIL ECONOMICS - Report 19 Feb 2018 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

In the communiqué of the decision that lowered the SELIC rate to 6.75%, the Central Bank indicated a high probability that the easing cycle was over, but the minutes left the door open to one more cut. More important than discussing whether the cycle will end at 6.75% or 6.5%, however, is recognizing that monetary policy is accomplishing its mission of controlling inflation, and has been making a decisive contribution to the economic recovery. And more relevant still are the repeated statements that the Bank’s next actions will depend not only on the course of inflation and economic activity, but also on the progress of the fiscal adjustment. With the federal intervention in the state of Rio de Janeiro, the likelihood of approval of the pension reform has fallen to practically zero, indicating a worse balance of risks, which increases the probability of caution in the Bank’s next decisions.

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