Central Bank slashes interest rate eyeing recovery

In a push to foster economic activity, the Brazilian Central Bank slashed the country’s Selic benchmark interest rate from 3 to 2.25 percent a year, in line with market expectations. The monetary authority considered the current level to be compatible with the economic impacts of Covid-19 and “future adjustments to the current level of stimulus will be residual.”

In a statement, the bank’s Monetary Policy Committee said: “Regarding the global outlook, the Covid-19 pandemic continues to cause a pronounced slowdown in global growth. Against this backdrop, despite the significant provision of fiscal and monetary stimuli in major economies and some moderation in the volatility of financial assets, the environment for emerging economies remains challenging.”

The Central Bank believes that various measures of underlying inflation are running below the level compatible with meeting targets. However, they warned that there is little room left for monetary policy to have an effect on economic activity.  

All economic indicators suggest that Q2 2020 will see a slowdown, with major sectors, such as services and industries, registering record falls in revenue. The Focus Report — a weekly survey among top-rated investment firms — offers a snapshot of deteriorating expectations for the Brazilian economy. GDP projections have been slashed for 18 straight weeks.

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