Copom reduces basic interest rate to 8% per year.
The eighth consecutive drop in the Selic rate was expected by most financial analysts; with the reduction, the rate reaches the lowest level in the history of the Copom (Monetary Policy Committee), created in 1996.
Agency Brazil – The basic interest rate (Selic), which was already the lowest in history at 8,5%, fell a little more today (11), and from tomorrow (12) it will be 8% per year, valid for the next 45 days. The eighth consecutive decrease in the rate, which serves as a benchmark for interest rates in the economy, was announced a short while ago by the Monetary Policy Committee (Copom), at the end of the fifth meeting of the Central Bank (BC) board of directors this year.
The decision was expected by most financial analysts, who are consulted weekly by the Central Bank's Focus survey. Some even hoped for a bolder reduction, to 7,75%, believing that the current scenario, with falling inflation and weak economic activity, creates favorable conditions for the Central Bank to loosen monetary policy as much as possible.
The Selic rate has fallen 4,5 percentage points in the eight meetings that the Copom (Monetary Policy Committee) has held from the end of August 2011 to the present, resulting in a 36% drop. This reduction, however, was not accompanied in the same proportion by the national financial system (SFN), despite the government's determination, last April, for state-owned banks to lower their interest rates as a way to encourage private banks to do the same.
Research by the Procon Foundation of São Paulo shows that, based on data from the seven largest banks in the country, even considering the reductions made by Caixa Econômica Federal and Banco do Brasil, interest rates at banks have fallen very little in the last 12 months: 6,30% in the average monthly rate for personal loans, which was 5,50% last month, and 12,55% in the average rate for overdrafts, which was 8,36%. This is higher, in one month, than the annual Selic rate.
Signaling
The Copom (Monetary Policy Committee) reduced the basic interest rate (Selic) from 8,5% to 8% per year because it understood that at the moment "the risks to the inflation trajectory remain limited." Furthermore, the BC's (Central Bank) board of directors considers that the contribution of the external sector has been disinflationary, due to the fragility of the global economy.
The diagnosis is part of the statement released by the Copom (Monetary Policy Committee) immediately after the conclusion of its fifth meeting this year to define the direction of monetary policy, and adds that, due to the absence of inflationary pressures, it unanimously decided to continue the process of adjusting monetary conditions. This leaves open the possibility of further reductions in future meetings.
The 8% rate is the lowest in the history of the Copom (Monetary Policy Committee), created in 1996, and is valid for the next 45 days, since the decision was "unbiased." This means that the basic interest rate cannot change until the Committee's next meeting, scheduled for August 28th and 29th.