Brazil benchmark interest back to one digit

For the seventh time in a row, the Central Bank lowered Brazil's benchmark interest rate, the SELIC. In a Wednesday (Jul 26) move, the Monetary Policy Committee (COPOM) cut the SELIC by one percentage point, from 10.25% to 9.25% per annum. The decision had been expected by analysts.

Today's reduction brings SELIC to its lowest level since October 2013, when it stood at 9%. This is the first time the rate has just one digit in almost four years. Since November 2013, when COPOM raised the tax to 10%, the tax had had two digits.

The Central Bank announced that the political uncertainties have not impacted the expectations for the inflation so far. The note, however, says that the pace of cuts will depend on how far the structural reforms under deliberation in Congress are to advance.

From October 2012 to April 2013, the rate was kept at 7.24% a year, the lowest level in history. The SELIC was then gradually adjusted until it reached 14.25% in July, 2015. Only in October last year did COPOM once again reduce the rate following a drop in inflation.

The SELIC is the Central Bank's main tool to curb the official inflation, measured by the National Broad Consumer Index (IPCA). According to the Brazilian Institute of Geography and Statistics (IBGE), the IPCA ed a deflation of 0.23% in June, the first negative variation in the index in 11 years.

In the 12-month period ending in April, the IPCA shows an accumulated 3%, the lowest rate for a 12-month time span since 2007. For this year, the National Monetary Council (CMN) has set the target for the inflation at 4.5%, plus or minus 1.5 percentage points. The inflation, however, should not sur 6% this year or sink below 3%.

Translated by Fabrício Ferreira