Brazil’s central bank raised interest rates by 100 basis points to 14.25%, indicating a smaller hike at the next meeting amid economic slowdown concerns. New governor Gabriel Galipolo is anticipated to adjust policy in line with Lula’s economic strategies. Inflation forecasts have been slightly lowered, yet the bank aims for a 3% target despite global challenges.
On Wednesday, Brazil’s central bank implemented a 100 basis points increase in interest rates for the third consecutive time, raising the benchmark Selic rate to 14.25%. This decision, reached unanimously by the bank’s rate-setting committee (Copom), aligned with the predictions of 37 economists surveyed by Reuters. Notably, the committee indicated a forthcoming smaller adjustment at their next meeting as they observe signs of an economic slowdown.
The focus has shifted toward the central bank’s upcoming strategies under the leadership of new governor Gabriel Galipolo, appointed by President Luiz Inacio Lula da Silva. Economists, including Flavio Serrano from Banco BMG, anticipate a potential 50 basis point increase in May, suggesting this may conclude the current tightening cycle. Galipolo has maintained the policy direction established by his predecessor, Roberto Campos Neto, prior to his departure in January.
While the Brazilian currency has appreciated over 9% against the U.S. dollar this year, inflation expectations have declined, raising skepticism about achieving the official 3% target. Policymakers have noted a concerning dip in economic activity despite some early data indicating resilience for the year ahead. Copom’s recent statement highlighted the ongoing strength in various economic indicators while acknowledging the early signs of a growth moderation.
In revising its inflation forecasts, the central bank has adjusted its 2025 inflation estimate to 5.1% from a prior 5.2%. It now projects 12-month inflation of 3.9% for the third quarter of 2026, a slight decrease from the previous 4.0% estimate. Analysts from JP Morgan characterized the bank’s statements as hawkish, projecting another two 50 basis points hikes in upcoming meetings, ending at 15.25%.
In conclusion, Brazil’s central bank has raised interest rates by 100 basis points to address economic conditions, signaling a likely smaller increase in the near future. The adjustments reflect both an ongoing commitment to combating inflation and awareness of a potential economic slowdown. Under the new leadership of Gabriel Galipolo, the bank’s future strategies are critical in navigating the challenges posed by domestic and international economic landscapes, particularly in relation to inflation targets and overall growth. The revised forecasts underscore the delicate balance the central bank must maintain moving forward.
Original Source: money.usnews.com
