Brazil’s central bank increased interest rates by 100 basis points to 14.25%, hinting at a smaller hike in the next meeting. The decision follows the guidance of new governor Gabriel Galipolo, as the bank balances inflation management with stimulus efforts amid a mixed economic backdrop.
On Wednesday, Brazil’s central bank raised interest rates by 100 basis points, marking the third consecutive hike as it adheres to its prior guidance. The decision was unanimous, elevating the benchmark Selic rate to 14.25%, a peak not reached since 2016, aligning with forecasts from all economists surveyed by Reuters. In a statement, the bank indicated a potentially smaller adjustment in the upcoming meeting should economic conditions evolve positively.
Market attention has shifted towards the central bank’s future directives, now under the leadership of Gabriel Galipolo, who took over from the frequently criticized Roberto Campos Neto in January. Galipolo has aligned closely with the former governor’s guidance for the current economic tightening phase, initially set at 200 basis points for the first quarter of this year.
As President Luiz Inacio Lula da Silva faces low approval ratings, he has intensified stimulus efforts to invigorate consumption, which contrasts with the central bank’s goal to temper economic activity to manage inflation effectively. This central bank decision coincided with the Federal Reserve’s decision to maintain steady rates while evaluating Brazil’s unfolding policy landscape.
Despite a more than 9% appreciation of Brazil’s currency against the dollar this year, longer-term inflation expectations remain concerning, highlighting uncertainty about reaching the 3% official target. Furthermore, while Brazil’s economic activity exhibited signs of slowing in the last quarter, recent data has shown resilience, indicating mixed yet positive trends.
The central bank updated its inflation forecast for 2025, reducing it from 5.2% to 5.1%. Additionally, for the third quarter of 2026, it now anticipates a 12-month inflation rate of 3.9%, a slight decrease from the prior expectation of 4.0%.
In summary, Brazil’s central bank has raised interest rates by 100 basis points for the third consecutive time, projecting a smaller increase at the next meeting. Under Gabriel Galipolo’s stewardship, the bank remains vigilant about economic activity and inflation management while navigating a politically charged environment. The adjustment of its inflation forecasts further underscores an evolving economic landscape as policymakers monitor growth signs closely.
Original Source: www.tradingview.com
