Brazil: Central Bank doubles pace of rate hikes in December
Accelerated tightening pace surprises markets: At its meeting on 10–11 December, the Monetary Policy Committee (COPOM) of the Central Bank of Brazil (BCB) accelerated the pace of its tightening cycle and increased the SELIC rate by 100 basis points to 12.25%. The rise, on the heels of November’s 50 basis point hike, was unanimous, and its size surprised markets on the upside. The move brought the cumulative increase to 175 basis points since September, when the current tightening cycle started.
High inflation and GDP growth to blame: The Central Bank decided to hike rates more aggressively due to persistently above-target headline and core inflation, plus the economy remaining robust, as seen with GDP unexpectedly growing in Q3. Moreover, the Bank assessed that previous upside risks to inflation have materialized, and now the outlook is less uncertain and has deteriorated: The COPOM raised its inflation projections for Q2 2026 by 0.4 percentage points to 4.0%, closing in on the upper bound of the Bank’s 1.5–4.5% tolerance band. Additionally, the Bank noted risks remain skewed to the upside.
Tightening to continue in Q1 2025: The Central Bank’s forward guidance hinted at two same-sized increases at its next two meetings on 28–29 January and 18–19 March, respectively, a view shared by most of our panelists. Our Consensus is then for the SELIC rate to peak in Q2 and to be slightly reduced by the end of the year. The government’s fiscal policy remains a key factor to watch as it recently led to a weaker currency and a further deanchoring of inflation expectations.
Panelist insight: Reflecting on the risks, analysts at the EIU added:
“There is a risk that the BCB will take interest rates higher and keep them there for longer than we forecast if inflation expectations continue to drift away from the 3% target amid lingering concerns about the Lula government’s commitment to fiscal discipline.”