Central Bank hikes twice as fast in November

Central Bank accelerates tightening pace: At its meeting on 5–6 November, the Monetary Policy Committee (COPOM) of the Central Bank of Brazil (BCB) increased the SELIC rate by 50 basis points to 11.25%. The rise, on the heels of September’s 25 basis point increase, was unanimous and had been priced in by markets.

Risks to the inflation outlook remain tilted to the upside: Persistently above-target headline and core inflation coupled with unanchored inflation expectations plus strong economic activity and labor market conditions motivated the Bank to accelerate the pace of its tightening cycle. Moreover, the inflation outlook deteriorated further: The Bank raised its inflation projections to 4.6% and 3.9% for 2024 and 2025, respectively, from 4.3% and 3.7%, respectively, at its September meeting. Lastly, the COPOM sees inflation at 3.6% in Q2 2026, also close to the upper bound of the Central Bank’s 1.5–4.5% tolerance band. Additionally, the Bank noted risks to the outlook are skewed to the upside. As a result of these factors, the Bank deemed a more contractionary monetary policy stance necessary.

More hikes to come through H1 2025: In its press release, the Central Bank provided no explicit forward guidance. The vast majority of our panelists expect the Bank to deliver another 50 basis point hike at its last scheduled meeting in 2024, set for 10–11 December. They expect the policy rate to peak in H1 2025, before declining in H2 2025. The government’s upcoming fiscal containment measures will be key to watch ahead—investors’ concerns over loose fiscal policy have recently pushed down the value of the currency against the U.S. dollar and raised long-run interest rates.

Panelist insight: Goldman Sachs’ Alberto Ramos said: “We expect the Copom to deliver another 50bp rate hike at the December meeting, but if the upcoming fiscal package [to contain government spending] disappoints and inflation expectations continue to deteriorate, we see a material risk of a large 75bp hike.”

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