Brazil’s central bank raised interest rates by 100 basis points for the third time, increasing the Selic rate to 14.25%. Policymakers anticipate a smaller hike next meeting while monitoring economic conditions under the new leadership of Governor Gabriel Galipolo. Despite recent currency gains, inflation expectations have worsened, prompting adjustments in inflation forecasts for 2025 and 2026.
On Wednesday, Brazil’s central bank raised interest rates by 100 basis points for the third consecutive time, adhering to previous guidance. The benchmark Selic rate has now ascended to 14.25%, a level reminiscent of 2016, reflecting a unanimous decision by the bank’s rate-setting committee, Copom, in alignment with the forecasts of economists surveyed by Reuters.
Policymakers indicated a potential for a smaller rate hike at the next meeting, stating, “The Committee anticipates an adjustment of lower magnitude in the next meeting, if the scenario evolves as expected.” This development places focus on the new governor, Gabriel Galipolo, who took over in January.
Galipolo, a prominent supporter of President Luiz Inacio Lula da Silva, has monitored the guidance established by his predecessor, Roberto Campos Neto. Under Galipolo’s leadership, the central bank remains committed to tackling inflation while balancing the demands of the current administration’s pro-consumption policies despite already facing diminished approval ratings for Lula.
The timing of Brazil’s rate adjustment coincided with the U.S. Federal Reserve’s decision to keep rates steady, as it closely assesses the new Brazilian government’s economic strategies. Although Brazil’s currency has appreciated by over 9% against the U.S. dollar this year, inflation expectations have shown signs of deterioration, raising concerns over achieving the targeted 3% inflation rate.
Economic activity in Brazil has exhibited signs of slowing more than anticipated last quarter, yet preliminary data from the current year suggests resilience. The Copom remarked on the strength of certain economic indicators, despite recognizing initial moderation in growth, stating, “The set of indicators on economic activity and labor market has been exhibiting strength…”
In light of evolving economic circumstances, the central bank has revised its inflation forecast for 2025 to 5.1%, down from 5.2% in January. Additionally, for the third quarter of 2026, it anticipates 12-month inflation of 3.9%, a slight adjustment from the previous estimate of 4.0%.
In conclusion, Brazil’s central bank has implemented a 100-basis point interest rate hike, signaling a potential for smaller increases in the future as it navigates economic uncertainty. The leadership transition to Gabriel Galipolo introduces new dynamics in the central bank’s policy approach, with a focus on managing inflation amid governmental efforts to stimulate economic growth. Updated forecasts reveal an adjusted inflation outlook, reflecting ongoing assessments of Brazil’s economic performance and conditions.
Original Source: www.tradingview.com
