The last COPOM meeting before the elections

BRAZIL ECONOMICS - Report 24 Sep 2018 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

At the last meeting before the elections, the COPOM kept the SELIC rate at 6.5% a year. Although the slow pace of economic recovery is working in favor of price stability, if progress is not made on the agenda for reforms, leading to fiscal consolidation, the risks will grow, weakening the real and raising inflation, in turn reducing or even eliminating the space for estimulative monetary policy. With large idle capacity, inflation gradually returning to the central target and expectations anchored, the Central Bank can evaluate its next movements with serenity after the first election results. However, there is a very real risk that the next government will not make progress – or will only progress slightly – toward the necessary reforms, reducing the maneuvering room for monetary policy. From what can be gathered at the moment, the indication given by the Central Bank is that it will gradually reduce the monetary stimuli.

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