Brazil’s central bank increased interest rates by 100 basis points to 14.25%, signaling smaller hikes ahead. Governor Gabriel Galipolo inherits a challenging economic landscape where high inflation and stimulus measures create tension. Analysts expect a slowed pace of monetary tightening in upcoming meetings.
On Wednesday, Brazil’s central bank raised its benchmark interest rates by 100 basis points for the third consecutive meeting, resulting in a Selic rate of 14.25%. This decision was made unanimously by the bank’s rate-setting committee, Copom, aligning with predictions from 37 economists surveyed. The committee indicated they may implement a smaller increase in future meetings as they assess signs of economic slowdown.
The central bank emphasized its intention to lower the rate hike magnitude in the next meeting, contingent upon the anticipated economic scenario. Analysts are now closely observing Governor Gabriel Galipolo’s approach, who succeeded Roberto Campos Neto earlier this year, under a backdrop of political scrutiny. Flavio Serrano from Banco BMG suggests that a 50-basis-point hike in May might conclude the current tightening cycle.
Galipolo is reportedly adhering to pre-set guidance established by Campos Neto, which included a forecast of 200 basis points of tightening in the initial first quarter of the year. However, policymakers are also under pressure from President Luiz Inacio Lula da Silva’s economic stimulus measures, which contradict the central bank’s tightening approach aiming to manage inflation.
Additionally, Brazil’s central bank coincided its decision with a steady interest rate announcement from the U.S. Federal Reserve, addressing the effects of U.S. economic policies. The global environment remains turbulent, impacting Brazil’s currency and inflation expectations. While the Brazilian currency has risen over 9% against the U.S. dollar this year, longer-term inflation expectations have declined.
Recently reported economic activity displayed unexpected weakness last quarter, yet early indicators in 2023 have suggested resilience. Copom noted, “The set of indicators on economic activity and labor market has been exhibiting strength, even though we observe signals that suggest an incipient moderation in growth.”
In line with the updated economic outlook, the central bank revised its 2025 inflation forecast to 5.1%, down from the previous 5.2%. For Q3 2026, the estimate for 12-month inflation was adjusted to 3.9%, slightly better than the earlier 4.0%. JP Morgan analysts commented on the central bank’s conservative adjustments to its inflation outlook despite economic fluctuations, predicting further rate increases in May and June.
In summary, Brazil’s central bank continues to adjust its interest rate policy in response to economic conditions, raising the Selic rate to 14.25% while signaling a potential decrease in the scale of future hikes. Governor Galipolo’s administration is under scrutiny as inflation management conflicts with government stimulus initiatives. The bank’s recent forecasts reflect a careful balance between combating inflation and supporting economic activity amidst uncertain global conditions.
Original Source: money.usnews.com
