Brazil Central Bank Leaves Selic Rate Unchanged at 2% After 9 Consecutive Cuts

09/16/2020 | 05:42pm

By Jeffrey T. Lewis and Paulo Trevisani

 

SAO PAULO--Brazil's central bank left its benchmark Selic lending rate unchanged at a record low Wednesday amid concern about the government's fiscal situation and as the country's economy recovers more quickly than expected from the coronavirus crisis.

The policy committee left the Selic at 2%, the first time in 10 meetings the bank didn't cut the rate. The central bank maintained its guidance that there's little, if any, space for more cuts to the Selic and that it won't reduce monetary stimulus unless inflation starts to heat up.

"Possible future adjustments to the current degree of monetary stimulus would occur with additional gradualism and would depend on the perception of the fiscal trajectory, as well as on new information that changes the committee's current assessment about prospective inflation," the statement said.

The bank's decision to maintain the Selic at 2% comes after the country's authorities have taken a number of steps to mitigate the effects of the coronavirus on the economy, including cutting the Selic to a record low, easing credit conditions and making cash payments to the country's poorest residents.

The hundreds of billions of reais of extra spending pushed the national debt up to 86.5% of gross domestic product in July, from 75.8% at the end of last year, according to the central bank.

That and a proposed plan to boost spending on an antipoverty program sparked concern President Jair Bolsonaro might be casting fiscal responsibility aside in favor of populist measures, though some of those worries were calmed Tuesday when Mr. Bolsonaro said he had decided to abandon the plan.

"Their main concern is still the fiscal situation, which is the source of most uncertainty," said Carlos Pedroso, chief economist at Banco MUFG Brasil. Mr. Bolsonaro's decision not to implement the new antipoverty plan because of concerns over the cost "shows that if he does eventually launch the program, he'll do it within the fiscal limits."

 

Write to Jeffrey T. Lewis at jeffrey.lewis@wsj.com

 

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