Brazil holds interest rates at a record low

Brazil’s central bank held interest rates at a record low on last February 6thas expected, signalling it is in no rush to change them even though inflationary pressures have cooled, notices Reuters.

The bank’s monetary policy committee, known as Copom, voted unanimously to keep the benchmark Selic rate at 6.50% for the seventh straight meeting. According to Reuters, 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 too.

«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 ($350 billion) over the next decade and help the central bank to keep rates low — or even cut them further.

A stronger Brazilian currency will also help to cool price pressures. Interest rates futures markets are already pricing in around 20 basis points of easing by the end of the year.

Original story:Reuters |Jamie McGeever
Photo: Svilen Milev
Edition: Prime Yield