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Uncertainty demands flexibility in interest rates: Brazil's Central Bank

BRASILIA
2018-09-26 11:37

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The Brazilian Central Bank's Monetary Policy Committee (Copom) said at its meeting last week that the uncertainty in the current situation demands "greater flexibility" in setting its benchmark Selic interest rate, showed minutes released on Tuesday.

In the minutes of the meeting held on Sept. 18-19, Copom said it debated the "advisability of signaling" the future evaluation of monetary policy. However, the members said it was better to avoid forecasting the path of the basic interest rate.

"All members considered that the level of uncertainty of the current environment creates a need for greater flexibility to conduct monetary policy, which recommends refraining from providing indications on the next steps," Copom said.

Last week, Copom unanimously decided to keep the Selic rate at 6.5 percent annually for the fourth consecutive time. The rate remains at its lowest level since the beginning of the Central Bank's historical series in 1986.

In setting the rates, Copom reiterated the commitment to keeping inflation at the official goal, according to the minutes.

"This requires the flexibility to gradually adjust the conduct of monetary policy when and if needed. This ability to respond to different circumstances contributes to the maintenance of the environment with anchored expectations, which is fundamental to ensure that the achievement of low inflation persists, even in the face of adverse shocks," it said.

Brazil's inflation target in 2018 is 4.5 percent, and for next year it is 4.25 percent, with a 1.5 percentage-point margin of tolerance.

The transfer to prices by the rise of the U.S. dollar has remained in check in Brazil, with the exception of some items such as fuel, Copom said.

"These effects can be mitigated by the degree of idleness in the economy and the inflation expectations anchored in the goals," it said.

Although inflation indexes indicate a rise in prices, they are still in line with the goal targeted by the Central Bank of Brazil.

Last week's Copom meeting was the last before the Oct. 7 elections.

The next meeting is scheduled for the week after a possible second round of the elections scheduled for Oct. 28, which will decide Brazil's next president.
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