The Central Bank of Brazil Maintains Selic Rate at 6.5%

IndraStra Global

The Central Bank of Brazil Maintains Selic Rate at 6.5%

Image Attribute: Brazilian Currency Real / Denomination 50 / Source: Pixabay.com / Creative Commons 0

Image Attribute: Brazilian Currency Real / Denomination 50 / Source: Pixabay.com / Creative Commons 0

For the second consecutive time, the Central Bank of Brazil (Portuguese: Banco Central do Brasil) did not change the economy's benchmark interest rate. The Monetary Policy Committee (COPOM) unanimously decided to hold the Selic rate at 6.5% a year on June 20, 2018. The decision had been expected by analysts.

Latin America's biggest economy continues to emerge slowly from its worst recession in history, which extended through 2015 and 2016. The Central Bank has mounted a sustained campaign to breathe life into the moribund economy, slashing the Selic all the way from 14.25 percent in October 2016, a time when the country faced not only negative economic growth but high inflation.

In May 2018, the Central Bank interrupted a series of 12 consecutive cuts to the key Selic rate, citing volatility in the markets and investor frustration over the government’s inability to push through pension reform and other long-delayed austerity measures.

But in May 2018, an extended truckers’ strike brought the economy to its knees, adding to a rising sense of political uncertainty ahead of general elections in October. While the resignation of Pedro Parente, the chief executive of state-controlled Petrobras, raises ample amount of questions about political interference in key parts of the economy. So far, no strong candidate backs President Michel Temer’s stalled market reforms program.

In a note, the committee argued that the strike staged by truck drivers brought the economy to its knees, adding to a rising sense of political uncertainty ahead of general elections in October. That makes gauging the outlook for the economy more difficult.

"The stoppages in the freight sector in May make the readout on the recent economic activity difficult. Data on April suggest more consistent activity than in previous months. However, indicators on May and possibly June will likely reflect the effects of said stoppages," the bank said in a statement.

GDP growth projections for 2018 have fallen from 2.45 percent just five weeks ago to 1.76 percent in the latest central bank survey of market expectations. At the start of the year, the forecast was for three percent economic growth. Also, forecasts for this year's inflation rose to 3.8 percent, from 3.5 percent before the previous rate-setting meeting in May. The new inflation projections remain within the central bank's target range, which centers on 4.5 percent, with a 1.5 percent margin to each side.

With reporting by Empresa Brasil de Comunicação