Central Bank reduces basic interest rates for the economy to 12.25% per year
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The Central Bank’s Monetary Policy Committee (Copom) decided this Wednesday (1st) to reduce the basic interest rate by half a percentage point, taking the Selic rate to 12.25% per year. This is the third consecutive drop in basic interest rates. The reduction was already expected by the financial market and was decided unanimously.
In a note, the Copom stated that “taking into account the importance of implementing the fiscal targets already established for anchoring inflation expectations and, consequently, for the conduct of monetary policy, the Committee reaffirms the importance of firmly pursuing these targets”. This week, President Luiz Inácio Lula da Silva (PT) stated that the market is “greedy” and that it will be difficult to meet the fiscal target of zero deficit established by the Minister of Finance, Fernando Haddad.
Lula’s statement was not well received by the financial market. Haddad tried to circumvent the crisis and denied the existence of the president’s “disengagement” with public accounts. However, the minister avoided saying that next year’s fiscal target will be maintained.
“If the expected scenario is confirmed, the Committee members unanimously foresee a reduction of the same magnitude in the next meetings and assess that this is the appropriate pace to maintain the contractionary monetary policy necessary for the disinflationary process”, pointed out the BC.
“The Committee emphasizes that the total magnitude of the easing cycle over time will depend on the evolution of inflationary dynamics, especially the components most sensitive to monetary policy and economic activity, inflation expectations, particularly longer-term ones, its projections of inflation, the product gap and the balance of risks”, says the note.
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