Will the SELIC Rate be 7% at the End of the Easing Cycle in December?

BRAZIL ECONOMICS - Report 11 Sep 2017 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

At the last COPOM meeting, the Central Bank cut the SELIC rate by 1 percentage point, but made it clear that smaller cuts will occur at subsequent meetings. The market consensus – and our estimate – is that the SELIC rate will reach 7% in December. But will this be the end of the cycle? On the one hand, there are several sources of downward pressure, such as agricultural prices, but on the other hand, the real market interest rate has fallen below the neutral level, strongly stimulating economic activity, and if the indications of more robust growth are borne out, there will be less room for new cuts. To have a more precise idea about the end of the cycle, more information is necessary.

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