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Interest

Copom maintains monetary tightening and rising benchmark interest rate to 12.25% pa

01/22/2015

This article was translated by an automatic translation system, and was therefore not reviewed by people.

 

 



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For the third time in a row, the Central Bank (BC) adjusted the basic interest rates. Unanimously, the Monetary Policy Committee (Copom) increased today (21) the Selic rate by 0.5 percentage point to 12.25% per year. The agency maintained the pace of monetary tightening. At the previous meeting, in early December, the rate had also been adjusted by 0.5 points.

With the adjustment, the Selic reaches the highest level since August 2011, when it was at 12.5% per year. The rate is the main instrument of BC to keep the official inflation rate, measured by the national index of the Consumer Price (IPCA), within the target set by the economic team. According to the National Monetary Council, the center of the inflation target corresponds to 4.5%, with tolerance of 2 percentage points, ranging between 2.5% (the target floor) and 6.5% (ceiling target).

In a statement, the Committee said the decision took into account the macroeconomic scenario and the outlook for inflation. The meeting lasted about three hours and started around 16:15, one hour earlier than usual, because of the trip the President of the Central Bank, Alexandre Tombini to Davos, Switzerland, to attend the World Economic Forum.

According to the Brazilian Institute of Geography and Statistics (IBGE), the IPCA totaled 6.41% in 2014. According to the Focus bulletin, weekly survey of financial institutions published by the Central Bank, the IPCA will close 2015 6.67%, above the target ceiling. The projection should rise in the coming weeks because of increases energy, fuel and high taxes on imported products recently announced by the Finance Minister, Joaquim Levy.

Although it helps in controlling prices, the increase in the Selic rate affect the recovery of the economy, which is still under the effect of government stimulus, such as exemptions and cheap credit. According to the Focus bulletin, economic analysts project growth of only 0.38% of Gross Domestic Product (GDP, the sum of goods and services produced in the country) this year.

The rate is used in the negotiations of government securities in the Special System of Clearance and Custody (Selic) and serves as a benchmark for other interest rates in the economy. To readjust it up, the BC contains excess demand pressure on prices, because higher interest rates more expensive credit and stimulate savings. When reduces the basic interest rate, the Committee lowers the credit and encourages the production and consumption, but relieves the control over inflation.

Selic

Source: Agency Brazil

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This article was translated by an automatic translation system, and was therefore not reviewed by people.

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