Brazil’s central bank increased interest rates by 100 basis points, raising the Selic rate to 14.25%. Policymakers signaled a potential slowdown in future hikes due to signs of economic deceleration and marginally lower inflation projections. The central bank remains cautious amid global trade uncertainties and evolving economic conditions.
On March 19, Brazil’s central bank raised interest rates by 100 basis points for the third consecutive meeting, increasing the Selic rate to 14.25%. This unanimous decision was in line with the expectations of all economists surveyed by Reuters. The bank indicated that the next rate hike could be smaller, reflecting a cautious approach as it assesses an economic slowdown.
Policymakers stated, “The Committee anticipates an adjustment of lower magnitude in the next meeting, if the scenario evolves as expected.” This suggests that future rate increases may be less aggressive. Gabriel Galipolo, the new central bank governor, is now influential in shaping monetary policy with a focus on returning inflation to target amid rising stimulus from the government.
Flavio Serrano, chief economist at Banco BMG, believes the central bank’s communication points towards a possible reduction in the pace of tightening, projecting a 50-basis-point hike in May as the last increase of this cycle. Galipolo, having assumed the role from Roberto Campos Neto, is closely following previously set guidance, which anticipated two hundred basis points of tightening in the first quarter.
The central bank also acknowledged global economic challenges due to U.S. economic policies, particularly regarding trade. Despite a 9% gain of Brazil’s currency against the U.S. dollar this year, long-term inflation expectations remain concerning, suggesting a struggle to meet the official target of 3%.
While recent data indicates some resilience in Brazil’s economic activity, it also hints at a potential slowdown. The central bank lowered its inflation forecast for 2025 from 5.2% to 5.1% and now expects 3.9% inflation for the latter part of 2026, slightly down from 4.0% previously estimated. Analysts from JP Morgan anticipate additional 50 basis-point hikes in upcoming meetings, expecting the tightening cycle to conclude at 15.25%.
Brazil’s central bank’s decision to raise interest rates indicates a cautious approach amidst signs of economic slowdown. While the immediate hike was substantial, future increases may be moderated. The central bank’s inflation outlook has slightly improved, yet concerns about the U.S. economic environment and persistent inflation expectations linger, shaping the economic landscape ahead.
Original Source: www.marketscreener.com
