Brazil’s central bank raised interest rates by 50 basis points Wednesday in a sixth straight hike that pushed borrowing costs to their highest in nearly 20 years, and left future steps open amid global uncertainties and sticky domestic inflation.
The bank’s monetary policy committee, known as Copom, raised the Selic to 14.75% in a unanimous decision, matching forecasts from 32 of 35 economists in a Reuters poll.
Policymakers stressed that the current environment calls for a “significantly contractionary monetary policy for a prolonged period” to bring inflation to target, dropping previous language about the need for “a more contractionary” stance.
“For the next meeting, the scenario of heightened uncertainty, combined with the advanced stage of the current monetary policy cycle and its cumulative impacts yet to be observed, requires additional caution in the monetary policy action and flexibility to incorporate data that impact the inflation outlook,” they added in the decision’s statement.
Flavio Serrano, chief economist at BMG Bank, said the central bank left the door open for a smaller rate hike in June if needed, though he sees it as unlikely.
“My base case is zero increase in June, holding at 14.75%. There may be room for a cut at the very end of the year, depending on how the outlook evolves,” he said.
In March, the central bank had already flagged the need for further tightening this month, though at a slower pace than the previous three 100 basis-point hikes.
With Wednesday’s move – announced just hours after the U.S. Federal Reserve held rates steady but cited the risk of rising inflation and unemployment – the Selic benchmark rate has now reached its highest level since August 2006.
The sky-high rates come against a backdrop of a 5.49% annual inflation rate, well above the official 3% goal, with markets skeptical that inflation will return to target even by as far out as 2028.
The aggressive tightening has added 425 basis points to the benchmark rate since September, but policymakers stressed on Wednesday they observe “an incipient moderation in growth,” with indicators of domestic economic activity and the labor market still exhibiting strength.
GLOBAL UNCERTAINTIES
Now, however, the inflation risk balance is no longer described as tilted to the upside, but rather as featuring higher-than-usual risks on both sides – including a new disinflationary risk tied to falling commodity prices.
“Indeed, the external scenario points to a greater disinflationary outlook than previously expected, which could support a pause in monetary tightening as early as June,” said Rafaela Vitoria, chief economist at lender Inter.
Global uncertainties, triggered by sweeping U.S. trade tariffs that have clouded the outlook for the world’s largest economy, have led Copom members to emphasize the need for greater caution and flexibility in remarks ahead of the decision.
The current environment, they previously argued, not only limits their ability to provide any guidance but also requires policymakers to consider a broader and diverse set of data to assess whether monetary policy is achieving its intended effects.
Their concern about the trajectory of Latin America’s largest economy came despite some favorable inflationary developments since the Brazilian central bank’s latest policy meeting, including a stronger currency BRBY and lower commodity prices.
On the other hand, the government of President Luiz Inacio Lula da Silva has unveiled new stimulus measures, such as changes to rules governing payroll-deductible loans, as it struggles to reverse a plunge in the leftist leader’s approval ratings.
Considering changes in macroeconomic conditions, Brazil’s central bank on Wednesday lowered its 2025 inflation forecast to 4.8%, down from 5.1% projected in March.
For the fourth quarter of 2026, the period most influenced by current monetary policy decisions, the bank now projects the 12-month inflation rate to reach 3.6%, down from 3.7% estimated in the quarterly monetary policy report released late March.
