The central bank of Brazil is set to raise its benchmark interest rate to 14.25% on March 19, the highest in almost a decade, amid rising inflation and mixed economic signals. The monetary policy committee expects to increase rates consecutively while providing limited future guidance. Analysts foresee further hikes in May, with projections indicating a peak rate of 15.25% later this year.
Brazil’s central bank is anticipated to increase its benchmark interest rate to 14.25% on March 19, marking the highest point in nearly a decade. According to a Reuters poll, the monetary policy committee, known as Copom, is expected to implement a 100 basis point hike, representing the third consecutive increase of this magnitude within the current tightening cycle.
Under the direction of newly appointed governor Gabriel Galipolo, the Banco Central do Brasil (BCB) has adopted a stringent approach to address rising inflation amidst various government measures aimed at tackling concerning economic trends. However, the forthcoming policy statement is expected to provide limited insight into future monetary policy, reflecting a backdrop of contradictory economic signals.
The increase in the Selic rate will elevate it to 14.25%, the highest level since September 2016. Economists predict that while the central bank will suggest a more gradually paced adjustment in May, further commitment to future moves remains uncertain. Recent economic data indicates a potential slowdown that may contribute to a reduction in inflation, which was recorded at 5.06% last month, the fastest increase seen in over a year.
The unpredictable tariff policy of U.S. President Donald Trump continues to create economic uncertainty, affecting monetary policies and trade relations with Brazil. In response to an additional survey question, the majority of analysts, 20 out of 22, expect another interest rate increase in May, following Copom’s April recess. Predictions for this increase vary, with 12 expecting a half-percentage point rise and seven anticipating a 75 basis point hike.
The Selic rate is predicted to peak at 15.25% in the third quarter, the highest rate since June 2006, after which it is projected to decline, potentially ending 2025 at 15.00% and further down to 12.50% by 2026. Despite expecting no new guidance on March 19, analysts believe there remains potential for a slower pace of rate hikes in the future.
In summary, Brazil’s central bank is preparing to raise the Selic interest rate to 14.25% by March 19, as part of its ongoing strategy to combat inflation. The bank’s future guidance appears limited due to mixed economic data, yet analysts anticipate an ongoing tightening cycle with further increases potentially occurring in May. The economic landscape remains influenced by external factors, particularly U.S. trade policy, while projections indicate a gradual decline in rates thereafter.
Original Source: www.marketscreener.com
