Brazil’s central bank left its benchmark Selic rate unchanged at 6.50 percent, as expected, but struck a more dovish tone by saying it now expects its key rate to remain unchanged this year, based on the latest survey of market expectations, compared with December’s forecast for the rate to rise by 1 percentage point to 7.5 percent.
Tempering this move toward easier policy, the Central Bank of Brazil, which has kept its rate steady since March 2018, added Copom’s (the monetary policy committee) forecast for the Selic rate in 2020 was unchanged at 8.0 percent.
Copom emphasized future monetary policy will depend on economic activity, the balance of risks and inflation projection and expectations, and “caution, serenity and perseverance” in policy decisions have been instrumental in keeping the path of inflation moving toward the target of 4.5 percent, plus/minus 1.5 percentage points.
Underscoring the softer tone of Copom’s statement, it said the risks around its baseline scenario of a gradual recovery of Brazil’s economy were asymmetrical due to the increased risks of a slowdown in global growth from several uncertainties, such as trade conflicts and Brexit.
As a result of the deteriorating outlook for global growth, the central bank said the risks to inflation had also moderated and overall economic conditions still call for monetary stimulus.
The latest Focus survey pointed to expectations for inflation this year of around 3.9 percent, 4.0 percent in 2020 and 3.75 percent for 2021. This is down from the previous survey’s expectations for inflation this year of 4.1 percent, but unchanged for 2020 and 2021.
Today’s decision by Brazil’s central bank was likely the last under outgoing President Ilan Goldfajn whose successor, Roberto Campos Neto, is expected to face confirmation hearings later this month.
Under Goldfajn Brazil’s inflation rate has steadily declined to 3.75 percent in December from over 10 percent in early 2016 while the exchange rate of the real has stabilized in recent months after falling in the first half of 2018.
The real was trading at 3.70 to the U.S. dollar today, up 4.9 percent this year due to optimism over economic reforms.
The Central Bank of Brazil issued the following statement:
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