On June 21, the Brazilian Central Bank once again kept interest rates unchanged at 13.75 percent. In a statement to the markets, the bank did not allude to a possible change of course in its hawkish monetary policy, as many economists anticipated.
Less than a week later, the bank issued the minutes of its policy meeting, which adopted a much softer tone.
This showed that the monetary policy committee is divided on how it should send signals on future moves, with a majority of members siding with the understanding that economic conditions “might allow the necessary confidence to be built up to begin a parsimonious process of inflection at the next meeting,” in August.
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This episode used music from Uppbeat. License codes: Aspire by Pryces (B6TUQLVYOWVKY02S). Momentum by Corinne (EWGEKGTW5LJANSOW). Miami 1987 by Hey Pluto! (Y7RUHYOBGB67AZC6).
In this episode:
- Mario Sergio Lima is a senior Brazil analyst at Medley Global Advisors and a monthly columnist for The Brazilian Report. Between 2006 and 2021, he worked for O Estado de S.Paulo, Folha de S.Paulo, and Bloomberg.
Background reading:
- A week ago, the Central Bank hadn’t put interest rate cuts on the horizon. But the bank’s Monetary Policy Committee has finally hinted at monetary easing in the near future.
- When interest rates were at an all-time low, many companies began to opt for post-fixed interest rate loans tied to the local interbank deposit certificate rate, known as the CDI. However, with the Selic benchmark rate remaining high for longer than previously expected, interest on these debts will also be higher than originally planned.
- In June 2022, we explained in our Brazil Weekly newsletter why we knew that the Central Bank, led by an orthodox economist, would take its time to lower rates.
- Inflation is cooling toward the government’s target, but the Central Bank still believes that prices will increase sharply in the latter half of the year.
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