Brazil: Central Bank sticks to its forward guidance and hikes rates in January
New Central Bank governor sticks to previously agreed forward guidance: At its meeting on 28–29 January, the Monetary Policy Committee (COPOM) of the Central Bank of Brazil (BCB) increased its SELIC rate by another 100 basis points to 13.25%. The rise was unanimous and had been priced in by markets, as the BCB stuck to its forward guidance from its December meeting. The decision, which brought the cumulative increases to 275 basis points since September 2024, was the first under the new Central Bank Governor Gabriel Muricca Galípolo.
Inflation outlook deteriorates further: The decision to raise interest rates further was due to persistently above-target headline and core inflation. Moreover, the BCB assessed that risks to the inflationary outlook remain skewed to the upside and that inflation expectations deanchored further recently. Stemming from this, the BCB hiked its 2025 inflation forecasts by 0.7 percentage points to 5.2%, well above its 1.5–4.5% tolerance band. Additionally, domestic economic activity and the labor market continue to show resilience, deeming a more contractionary monetary policy necessary to cool down the economy.
Aggressive rate hikes to continue in Q1: The Central Bank’s forward guidance indicated another rate increase of the same magnitude at its next meeting on 18–19 March, a view shared by all of our panelists. Our Consensus is for the Central Bank to continue hiking the SELIC rate in Q2, before then slightly reducing it by the end of the year. The government’s fiscal policy remains a key factor to monitor due to its effect on domestic demand.