New Indications on Monetary Policy

BRAZIL ECONOMICS - Report 25 Sep 2017 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

Against a backdrop of anchored inflation expectations and a negative output gap, the Central Bank has induced a decline of the market real interest rate below the neutral level. The indication in the most recent Inflation Report is that the SELIC rate can remain stable for a long period – probably throughout 2018 – without jeopardizing the inflation target in 2019, when it will rise slightly. Our projection is that the Central Bank will close the monetary easing cycle with the SELIC rate at 7% and will maintain this level for a long period, but we cannot exclude the possibility that it could fall slightly further in the event of new downward inflation surprises and slower economic recovery

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