Copom keeps base rate at 6.5% but hints at future hikes

In its last meeting before the October presidential elections, the Monetary Policy Committee (Copom) kept base rate Selic stable at 6.5% for the fourth consecutive time. 

Copom likely to keep Selic unchanged until 2019

Emerging markets seem to have won some respite from recent tailwinds, but base interest rate Selic remains at a record low of 6.5%.

Copom seen as leaving options open for faster rate cuts

Economists told Valor the Monetary Policy Committee (Copom) of the Central Bank left open the possibility of accelerating the pace of monetary easing in upcoming meetings. The Copom lowered policy rate Selic by 75 basis points to 12.25% on Wednesday. Maurício Molon, chief economist of Santander, says the market tends to react as soon as Thursday by pricing in the possibility of a 100bp cut in the next meeting, in April, if inflation trends remain favorable or the economic recovery proves even harder.

Central Bank President signals bigger rate cuts from January

Central Bank President Ilan Goldfajn on Wednesday gave even stronger indications that the Monetary Policy Committee (Copom) considers intensifying interest-rate cuts from January and defended the institution from recent criticisms from the market and businesspeople, which argue he’s been insensitive to the recession. "We are doing what has to be done. We are part of the solution, and this will be appreciated by society," said Ilan during breakfast with reporters. "We are on the right track from the monetary policy standpoint." In a brief speech, Ilan said that, thanks to the recovery of credibility and the work of anchoring expectations, the BC has made room to start cutting interest rates.

valor.com.br

Brazil Economists See Less Room for Cutting Rates Next Year

Brazil analysts forecast that the central bank will have less room for cutting rates next year, as inflation expectations for 2016 rose for the 10th straight week.

Reasons for the high interest rates of Brazil

The Treasury issues bonds under base rate Selic (11%) and the BNDES lends to companies based on the Long Term Interest Rate (TJLP) of 5%. The spread represents the Treasury subsidies, estimated at R$30 billion a year. Most of them are not included in the Budget of the Union, run outside of primary spending and cannot be influenced by Congress, which holds the task of discussing and approving the budget.

Half of credit operations in Brazil don't obey the base rate (Selic) and therefore are not subject to the Central Bank's monetary policy. These rates only affect free credit.

This means that an important share of portfolios at state-run banks is out of reach for the decisions of the Monetary Policy Committee (Copom). They are guided by fixed rates set by the Monetary Policy Council (CMN).

The result of this model is that to fight inflation with the interest rate, according to the inflation targeting regime, the Central Bank has to double its efforts. And who pays the bill for the high rates are those without access to the BNDES, farm credit from Banco do Brasil or housing loans from Caixa Econômica Federal.

Without understanding this anomaly and its effect on demand, there is no way to seriously discuss the reasons why interest rates in Brazil are much higher than in the rest of the world. Since the Selic affects only half of credit, its level has to be much higher than reasonable to contain inflationary pressures. One of the main channels through which the interest-rate lowers demand and fights inflation is credit.

Brazil raises rate to 8% as inflation threatens recovery

President Dilma Rousseff’s administration has renewed pledges to slow inflation even as Brazil’s $2.5 trillion economy has expanded less than expected by analysts for five straight quarters. Photo: Simon Maina/AFP

Brasilia: Brazil’s central bank accelerated the pace of interest rate increases, as policymakers step up efforts to slow inflation that forestalled the economy’s rebound in the first quarter.

The bank’s board, led by president Alexandre Tombini, voted unanimously to raise the benchmark Selic rate 50 basis points (bps) to 8%, matching the forecast of 19 of 57 economists surveyed by Bloomberg. Thirty-eight analysts expected a second straight 25 bps increase. A basis point is one-hundredth of a percentage point.

Central Bank lowers base interest rate to 7.25% and ends cycle of cuts

The Monetary Policy Committee (Copom) of the Central Bank lowered the Selic rate by 0.25 percentage point, to 7.25% a year, and made clear in its statement that the cycle of monetary easing started on August of last year ended with Wednesday's meeting. From now on, the rate will stay put for a “prolonged” period of time. According do Valor Data, with the new cut, the real base interest rate (discounted inflation for the next 12 months) fell to 1.66% a year, one of the lowest in the country's history. The fact that yesterday's decision was not unanimous indicates that Copom was getting ready to end the cycle of interest rate cuts. It's a usual practice for the committee: When decisions stop being unanimous, the next step is changing monetary policy. The interest rate market, which was already expecting the 0.25% percentage point cut to base interest rates announced yesterday by the Central Bank, will now focus on 2013. 

Valor International

11:57 PM (GMT -03:00) – Oct 10 2012

Brazil’s Central Bank Says Increase to 11.75% Part of ‘Adjustment Process’

Brazil’s central bank signaled it will raise the benchmark interest rate for a third straight meeting next month, after pushing borrowing costs yesterday to a two-year high to cool inflation.

Policy makers raised the overnight rate to 11.75 percent from 11.25 percent in a unanimous vote, saying the decision was the “continuation of the adjustment process.”

Brazil Interest Futures Rise on Central Bank Signal

Brazil’s interest-rate futures yields on contracts due before July 2012 rose as the central bank’s signal that it will raise rates to curb price increases offset a report showing inflation quickened less than expected.

Investors increased bets the central bank will raise its benchmark Selic interest rate, with the yield on the contract due July 2011 adding 6 basis points to 11.65 percent by 6:38 a.m. New York time, the highest intraday level since Dec. 8. On the agreement due April, the yield advanced 4 basis points to 11.15 percent.

Meirelles Dollar Loan Rates Top Libor by Most in Six Months

Brazilian dollar-based loan rates are climbing to a six-month high relative to those overseas as central bank President Henrique Meirelles boosts purchases of the greenback to slow the real’s world-beating rally.

Contracts due in January known as cupom cambial, a measure of annual dollar borrowing costs in Brazil, rose to 1.89 percent on Sept. 13, the highest level since July 23. The rate has jumped 11 basis points, or 0.11 percentage point, since Sept. 8, when the central bank started holding two daily auctions to buy dollars, helping create a shortage of the U.S. currency in the Brazilian loan market.

Brazilian Inflation Slows to Government Target For First Time This Year

Brazil’s consumer prices rose less than expected in August, falling under the mid-point of the government’s target for the first time this year, the national statistics agency said.
Inflation in Latin America’s biggest economy slowed to 0.04 percent in August from July, less than the 0.08 forecast by 37 analysts surveyed by Bloomberg, the national statistics agency said in a report distributed in Rio de Janeiro today. Annual inflation through August slowed to 4.49 percent, less than the 4.53 percent forecast in the survey.

Brazil's Central Bank Keeps Rate at 10.75% as Inflation Slows Below Target

Brazil’s central bank kept its benchmark interest rate unchanged at 10.75 percent after inflation slowed below target and as the global economic recovery falters.

Brazil May Pause at 10.75% on Below-Target Inflation, Slower Global Growth

Brazil’s central bank will probably keep its benchmark interest rate unchanged today after three straight increases as inflation has slowed below target and the global economic recovery falters.
Policy makers, meeting for the last time before October’s presidential election, will hold the benchmark rate at 10.75 percent, according to 46 of 57 economists surveyed by Bloomberg. Seven economists forecast a quarter-point increase, and four expect a half-point rise, betting higher borrowing costs are needed to prevent a rebound in inflation next year.