RIO DE JANEIRO, BRAZIL – Despite the continuing low inflation rate, the recent strong devaluation of the Brazilian currency and decreasing economic activity, Brazil’s Monetary Policy Committee (COPOM) surprised the market and announced on Wednesday it was maintaining the country’s benchmark interest rate (SELIC) at 6.5 percent per year.
“Taking into account the baseline scenario, the balance of risks, and the wide array of available information, the COPOM unanimously decided to maintain the SELIC rate at 6.50 percent per year,” read the statement issued by the Central Bank immediately following the decision.
Continuing, “The Committee judges that this decision reflects the recent change in the balance of risks to prospective inflation and is consistent with convergence of inflation to target over the relevant horizon for the conduct of monetary policy, which includes 2018 and, to a greater extent, 2019.”
According to the Central Bank the steep appreciation of the U.S. dollar seen in the past few days occurred not only here, in relation to the Brazilian real, but around the world, decreasing investor interest for emerging economies like Brazil.
“The external scenario became more challenging and volatile. The evolution of risks, largely associated with the normalization of interest rates in some advanced economies, has led to adjustments in the international financial markets. As a result, there was a reduction in risk appetite in relation to emerging economies,” stated the document.
For economic consultancy group Focus-Economics the scenario is likely to remain volatile until October’s Presidential election.
“Although some progress has been made in improving government accounts, tougher reforms are needed to put public finances on a sustainable path, and a market-friendly outcome in October’s elections is key to supporting the economic outlook.”