Brazil Central Bank cuts benchmark interest rate to 13% p.a.

The Central Bank's Monetary Policy Committee (Copom) have unanimously decided this Wednesday (Jan. 11) to cut the benchmark SELIC rate to 13% per annum. The decision surprised financial analysts, who expected a minor cut.

With today's decision, the SELIC rate is at the lowest level since April 2015, when it stood at 12.75% per year. From October 2012 to April 2013, the rate has reached the lowest level in history (7.25% per year); the rate has gradually increased until it reached 14.25% per annum in July 2015. Only in October last year, COPOM reduced Brazil's interest rate.

The SELIC rate is the main instrument used by the Central Bank to control official inflation, gauged by the Broad National Consumer Price Index (IPCA). According to the Brazilian Institute of Geography and Statistics (IBGE), the IPCA reached 6.29% in 2016—the lowest level since 2013 (5.91%).

Until last year, the inflation target set was 4.5%, with a tolerance margin of 2 points, reaching 6.5%.

By 2017, the National Monetary Council (CNM) reduced the tolerance margin to 1.5 percentage points. Therefore, inflation cannot sur 6% this year.

Translated by Amarílis Anchieta