Brazil’s central bank raised interest rates by 100 basis points to 14.25% for the third time while indicating a smaller hike may follow. New governor Gabriel Galipolo’s approach is under close scrutiny, particularly as Brazil navigates economic stimulus and inflation control. Recent economic indicators show resilience despite a noted slowdown.
On Wednesday, Brazil’s central bank announced a 100 basis points increase in interest rates for the third consecutive time, raising the benchmark Selic rate to 14.25%, a level not observed since 2016. This decision was unanimous among the Copom committee members, aligning with forecasts from all 37 economists surveyed by Reuters. The committee indicated a smaller rate increase might occur during the next meeting, contingent on economic developments.
Markets were particularly attentive to the central bank’s guidance regarding future policy directions under the new governor, Gabriel Galipolo, who has been in office since January. This follows the tenure of Roberto Campos Neto, who faced criticism from President Luiz Inacio Lula da Silva. Galipolo has maintained adherence to prior monetary policy strategies that anticipated a total of 200 basis points increase in the first quarter of this year.
As Brazil’s political landscape evolves, the focus shifted to how Galipolo will address inflation while navigating Lula’s stimulus measures intended to boost consumption, which appear in conflict with the bank’s aim to mitigate economic activity. This rate rise comes on the same day that the U.S. Federal Reserve elected to maintain steady rates, assessing the implications of Brazil’s new policies.
Despite the Brazilian real’s 9% appreciation against the U.S. dollar this year, enduring fears remain surrounding deteriorating long-term inflation expectations, hindering progress towards the central bank’s 3% inflation target. Recent data indicated that economic activity in Brazil had weakened more than anticipated, yet early signs from this year suggested some resilience, as noted by central bank officials.
In light of the prevailing economic climate, the central bank adjusted its 2025 inflation forecast downward to 5.1%, slightly reduced from the 5.2% prediction established in January. The projected inflation rate for the third quarter of 2026, influenced by current monetary policy, is now set at 3.9%, down from an earlier estimate of 4.0%.
In summary, Brazil’s central bank has raised interest rates by 100 basis points, signifying a continued tightening of monetary policy amidst signs of an economic slowdown. The upcoming decisions will largely depend on the guidance from new Governor Gabriel Galipolo, balancing inflation control against economic stimulus measures. Despite recent challenges, early data suggests resilience in Brazil’s economic activity, while inflation forecasts reflect adjusted expectations in line with monetary policy actions.
Original Source: www.tradingview.com
