Brazil’s central bank raised interest rates by 100 bps to 14.25%, signifying a stable but cautious monetary policy. The committee plans a smaller hike in the upcoming meeting, driven by economic slowdown signals. New governor Gabriel Galipolo is pivotal as inflation management contrasts with government stimulus efforts. Updated forecasts show slight improvements in inflation expectations.
Brazil’s central bank increased interest rates by 100 basis points for the third consecutive time, raising the Selic rate to 14.25%. This decision, made by the rate-setting committee Copom, aligns with previous forecasts and reflects a unanimous agreement among economists. The bank intends to implement a smaller rate increase in its next meeting as it watches for signs of an economic slowdown.
In their announcement, Copom indicated that future adjustments might be less severe depending on how the economic situation develops. Market observers are particularly interested in the guidance from new governor Gabriel Galipolo, who has maintained a similar policy direction to his predecessor, Roberto Campos Neto, during his first meetings.
Galipolo’s stewardship has attracted attention due to his affiliation with President Luiz Inacio Lula da Silva, who has been critical of banking policies. As Lula pushes for policies to stimulate consumption amidst low approval ratings, the central bank’s focus on controlling inflation becomes problematic.
Coinciding with Brazil’s rate hike, the U.S. Federal Reserve opted to hold rates steady, indicating they are awaiting clarity on the new administration’s economic policies. Despite a 9% appreciation of Brazil’s currency against the U.S. dollar this year, inflation expectations remain concerning, creating uncertainty about achieving the 3% target.
Recent economic data shows a more considerable than anticipated weakening in Brazil’s economic activity last quarter. However, officials noted signs of resilience in early 2023. Copom remarked that various economic indicators and labor market metrics indicate strength but also suggest a gradual moderation in growth.
In light of evolving economic conditions, the central bank has adjusted its inflation forecast for 2025 from 5.2% to 5.1%. For the third quarter of 2026, it now estimates a 12-month inflation rate of 3.9%, slightly improved from a previous estimate of 4.0%.
The Brazilian central bank’s recent rate hike reflects its cautious stance amid economic challenges. As it prepares for a potential smaller increase next, the focus is on new leadership and inflation targets amidst government stimulus measures. Observations on economic activity suggest a mix of strength and moderation, impacting future policy decisions.
Original Source: www.tradingview.com
