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Brazil central bank leaves interest rates at record low 6.5%

Thursday, February 7th 2019 - 10:29 UTC
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This was the first 2019 meeting of Copom and possibly the last for current bank president Ilan Goldfajn. Rates have been at this same level since March 2018 This was the first 2019 meeting of Copom and possibly the last for current bank president Ilan Goldfajn. Rates have been at this same level since March 2018

Brazil’s central bank left interest rates at a record low on Wednesday as expected, and signaled it is in no rush to change them even though inflationary pressures have cooled. The bank’s nine-member monetary policy committee, Copom, voted unanimously to keep the benchmark Selic rate at 6.5% for the seventh straight meeting.

This was the first 2019 meeting of Copom and possibly the last for current bank president Ilan Goldfajn. Rates have been at this same level since March 2018, or eight consecutive Copom rounds.

Economists and investors are beginning to consider the possibility that rates could even be cut later this year. Although inflation risks have eased since its December meeting, Copom gave no indication it is moving in that direction.

“The Committee judges that, since its previous meeting, notably related to the global outlook, inflationary risks have moderated,” Copom said in a statement accompanying the decision.

The central bank said the shifting global risks included greater odds of a global slowdown and easing short-term risks associated with normalizing interest rates in advanced economies.

Much will depend on how the economy performs in the coming months and the fate of the government’s economic reform agenda, which some see stimulating growth in the second half of 2019.
Based on market exchange rate and interest rate projections, Copom forecast inflation of 3.9% this year, unchanged from December but still below its 4.25% annual target.

The Brazilian real has strengthened around 5% since December’s policy meeting, largely on growing optimism that new right-wing President Jair Bolsonaro will deliver on his promise of ambitious economic reforms.

The central plank of that reform agenda is overhauling Brazil’s pension system, which could save the state up to 1.3 trillion reais (US$ 350 billion) over the next decade and help the central bank to keep rates low — or even cut them further. If such a reform is passed by Congress, economists believe the Selic rate could drop to 5.5% by the end of the year.

The next Copom meeting is scheduled for 19/20 March and by that time economist Roberto Campos, nominated to the post by Finance minister Paulo Guedes should be at the helm of the bank, if the Senate approves the nomination.

Categories: Economy, Politics, Brazil.

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