BRASILIA: Brazil’s central bank held its key interest rate steady at a nearly two-decade high and refrained from indicating the start of easing is near as inflation forecasts run above target despite a softer economy.
Board members led by Gabriel Galipolo voted unanimously to keep the benchmark Selic unchanged at 15% for the fourth straight meeting on Wednesday, as expected by all economists in a Bloomberg survey.
In a statement accompanying the decision, policymakers wrote that the current outlook is marked by “high uncertainty” and requires caution.
“The present strategy of maintaining the interest rate at its current level for a very prolonged period is appropriate to ensure the convergence of inflation to the target,” they said.
Policymakers held rates as inflation expectations in Latin America’s largest economy run above the 3% goal through 2028.
Prospects of greater public spending going into the 2026 election year and recent currency volatility back the bank’s cautious stance.
On the other hand, activity weakened last quarter and formal job creation withered in October, indicating a continued slowdown.
“It is a hawkish statement that shows the central bank still needs more confidence before lowering rates,” said Fernanda Guardado, a former central bank director who is now chief economist for Latin America at BNP Paribas.
“The central bank indicated that it will maintain its current strategy.”
Brazil’s decision came hours after Federal Reserve officials delivered a third consecutive interest-rate reduction and kept their outlook for just one cut in 2026.
In their statement, Brazilian central bankers lowered their annual inflation estimate for the second quarter of 2027 – which is currently their relevant horizon for monetary policy – to 3.2% from 3.3% in November.
Economists surveyed by the central bank have also reduced their inflation forecasts.
They currently see consumer price increases at 4.40% this month, 4.16% in December of next year and 3.8% at the end of 2027.
Still, policymakers kept language saying both headline and core inflation are above target, and that they wouldn’t hesitate to resume rate hikes if needed.
“Brazil’s central bank slightly dialled down its hawkish message at its December gathering, but stopped short of signalling a rate cut at the next meeting.
“While a January reduction may still be in the cards – especially if the currency rebounds from a recent slide – policymakers’ silence on their next steps heightens the odds that they’ll start easing in March,” Brazil economist Adriana Dupita.
Annual inflation slowed to 4.46% in November, easing back within the central bank’s tolerance range – which is a band of 1.5 percentage points both above and below the target – for the first time since September 2024.
On the month, consumer prices rose just 0.18%.
Brazil’s gross domestic product inched up 0.1% in the July-to-September period, while second-quarter growth was revised lower to 0.3%, the national statistics agency reported last week.
Retail sales have declined in five of the last six monthly readings, indicating that consumer demand is waning.
While recent indicators show economic growth is moderating, the labor market is still resilient, policymakers wrote.
Furthermore, the global environment remains uncertain due to factors such as US economic policy, they said.
“Overall, the Copom is not blinking,” said Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc, referring to the bank’s board.
“If there is to be a cut in January it will have to be signalled through Copom-speak in public appearances until the next meeting.”
The bank decision followed last week’s plunge in the real on news that an investor favourite appeared to be sidelined from a presidential run next year.
Any currency weakness could fan inflation by making imports more expensive.
“The committee has not yet opened the floor for discussion on the start of easing,” said Rafaela Vitoria, chief economist at Inter. — Bloomberg
