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Resumption of growth came in the face of falling interest rates and inflation, says BC


For president of the institution, the positive scenario of the Brazilian economy happened due to the change of the economic policy and firm performance of the institution

During the annual meeting of the International Monetary Fund (IMF), Central Bank President Ilan Goldfajn attributed the resumption of growth of the Brazilian economy to the process of falling inflation and interest rates in the last year.

For the president of the institution, this positive scenario of the Brazilian economy came as a result of the economic policy applied by the Government of Brazil and the firmness of the actions of the Central Bank, whose main function is to watch over economic stability and control of inflation.

In his evaluation, economic reforms and course corrections in the economy played an important role in this recovery process, and in particular, the fall in the basic interest rate, now set at 8.25% per year.

"The approval and implementation of various reforms and adjustments in the Brazilian economy in the last year - such as labor reform, educational reform, establishing a ceiling for public spending, changes in the oil and gas sector ... contributed for the reduction of the structural interest rate, "he said.

In the face of the resumption of consumption, which boosted the Gross Domestic Product (GDP) of the second quarter, Ilan also pointed out that there is a forecast of a resumption of investments, which should also contribute to this recovery process.

"Despite the recovery of purchasing power and the recovery of consumption, the resumption of investments is the next step expected to generate sustainable growth in the medium and long term," said Ilan. 

Positive process

From a level of 9.28% in 2016, official inflation measured by the Broad Consumer Price Index (IPCA) is now at 2.54% in the last 12 months ended in September. For this year, the analysts estimate is that inflation ends the year at 3%, within the tolerance margin of inflation - maximum of 6% and minimum of 3%.

The main function of the Central Bank is to ensure the country's financial stability and control inflation. For this, it follows an inflation target, which is defined by the National Monetary Council (CMN).

It is so important to keep inflation under control that when this goal is not achieved, the president of the Central Bank has to send a letter to the Minister of Finance explaining the reasons that left prices outside CMN parameters.

Faced with the rapid disinflation process seen in the last year, the target was changed. The inflation target will be 4.25% in 2019 and 4% in 2020. 

Selic Rate

The main instrument to combat inflation, the basic interest rate, Selic, has been following this process of falling prices: it fell from 14.25% a year in June last year to the current 8.25% a year - the lowest level in four years.

As the Selic is used by the Central Bank to increase or reduce access to credit, this reduction leads to a warming of consumption and an increase in economic activity. This is because the fall in the basic rate makes more productive investments possible.

For economists, the basic rate should reach 7% per year at the end of 2017, repeating the same performance at the end of next year. If this is confirmed, Brazil will live with the lowest interest rates in history.

Source: Government of Brazil, with information from  the Central Bank and  IBGE