Stockholm (Ekonamik) – “The Copom unanimously decided to lower the Selic rate to 5.50% p.a.” stated the Brazilian Central Bank. “The Committee judges that this decision reflects its baseline scenario for prospective inflation and the associated balance of risks, and it is consistent with convergence of inflation to target over the relevant horizon for the conduct of monetary policy, which includes 2020.”
One of the points most emphasised by the Brazilian Central Bank was its fiscal counterpart and the economic reform agenda of the Federal government of President Jair Bolsonaro. In a thinly veiled reference to the stalling reform of public pensions championed by the president’s advisors, the monetary policy committee, emphasised “that persevering in this process is essential for the reduction of its structural interest rate and for sustainable economic recovery. The Committee stresses that the perception of continuation of the reform agenda affects current expectations and macroeconomic projections. In particular, the Committee judges that concrete progress in this agenda is fundamental for the consolidation of the benign scenario for prospective inflation.”
Market analysts had expected the decision. “The statement indicates that another 50-bp ‘adjustment’ of the base rate is likely in the October meeting,” according to Mario Mesquita, Chief Economist at Itaú. “Interestingly, the authorities allude to a hybrid scenario, with a constant exchange rate (at BRL/USD 4.05).“
“For now, we expect another 50-bp rate cut in October,” he concluded.