Kelly Oliveira (2) and Stênio Ribeiro       Reporters Agência Brasil

Brasília – The Central Bank’s Monetary Policy Committee (“Copom”) has reduced the country’s benchmark interest rate, known as the Selic, to 8.5% per year. The decision was unanimous. A note from Copom explained that the committee felt inflationary pressure was a “limited risk at this moment,” and that due to the “fragility of the global economy, pressure from abroad was deflationary.”

This was the seventh consecutive reduction of the Selic by Copom (meetings are held every six weeks) and met market expectations (as revealed in the Central Bank’s last weekly survey of financial institutions, the Focus report, released on May 28).

At 8.5% Brazil’s basic interest rate is at a record low. Historically, the lowest the Selic had ever been was 8.75% between July 2009 and April 2010. It then rose steadily, reaching 12.5% in July 2011. Since then, over the last ten months, a long process of monetary policy loosening has taken place. And the majority of market analysts expect the Selic to continue its downward trend at the next Copom meeting scheduled for July 10 and 11.

Now the fact is that inflation in Brazil continues at a level above the government’s core target of 4.5% (with plus or minus 2 percentage points wiggle room). Even so, most analysts believe the Selic could go to 8% for a while (“médio prazo”) and rise again in 2013 to as much as 9.5%.

This latest Copom meeting took place against a background of two big changes. First, under the provisions of a recently passed freedom of information law (“Lei de Acesso à Informação”), the votes by the members will be made public.

Second, under the provisions of a temporary presidential decree (“medida provisória – MP-567”) of May 4, there will be changes in passbook savings (“caderneta de poupança”) yields. That change will affect some 100 million Brazilians.

MP 567 establishes that when the country’s basic interest rate, the Selic, is 8.5% or less, the yield will be 70% of the Selic plus the so-called Referential Tax (Taxa Referencial – TR”) that the Central Bank calculates every day (in the past the yield was 100% of the Selic plus the TR).

In practical terms, the change means that with the Selic at 8.5%, under the old rules the annual yield would be 6.17% (the TR at the moment is 0.5% per month). But it will be 5.95% per year under the new MP 567.

Allen Bennett – translator/editor The News in English

Link - Com mudanças em reunião, Copom define hoje nova taxa básica de juros

Link - Copom reduz taxa básica de juros para 8,5%, a menor desde julho de 2010

Link - Cai rendimento da poupança para depósitos novos com redução da Selic