The Central Bank of Brazil (BCB) slowed down the pace of lowering its key rate on Wednesday, lowering it for the seventh time in a row, but by only 0.25 percentage points, to 10.50%, due to of a “more adverse” external situation.
This decision, in line with analysts’ forecasts, was adopted by the Monetary Policy Committee (Copom) of the Central Bank at the end of its third meeting of the year. Five members of Copom voted for a reduction of 25 basis points, winning against the four others who voted for a reduction of 50 basis points.
The Brazilian key rate, called Selic, was reduced for the first time in three years last August, when it stood at 13.75%. The successive declines made it reach its lowest level since February 2022 (9.25%) on Wednesday, even if Copom opted for caution by reducing it by only 25 basis points compared to 50 basis points during previous meetings.
This slowdown in the decline in the interest rate is bad news for left-wing president Luiz Inacio Lula da Silva, who since his return to power in January 2023 has continued to call for a reduction in the Selic, estimating that this rate, which remains the second highest of the major economies behind that of Russia (16%), hinders economic growth.
Lula also believes that inflation, which reached 3.93% in March over one year, is under control in Brazil and does not justify such high interest rates. The external environment appears more adverse, due to high and persistent uncertainties regarding the start of the easing of monetary policy in the United States and the speed with which inflation will slow, explained Copom in a press release.
The central banks of the major economies remain determined to promote the convergence of inflation rates towards their objectives, in an environment marked by pressures on the labor market. The Committee believes that this scenario continues to require vigilance on the part of emerging economies, he added.