Brazil’s central bank raised its interest rate by a half-point and kept its options open for either another hike or a pause at its next decision as policymakers face above-target inflation and global economic uncertainty.Board members led by Gabriel Galipolo unanimously lifted the Selic to 14.75% on Wednesday, as expected by nearly all economists surveyed by Bloomberg. In a statement, policymakers wrote they will stay vigilant as the global environment is adverse and particularly unclear due to US economic and trade policies.
In that context, the calibration of “the appropriate tightening of the monetary policy” will depend on factors including economic activity, as well as inflation dynamics and expectations, policymakers wrote.
“For the next meeting, the scenario of heightened uncertainty, combined with the advanced stage of the current monetary policy cycle and its cumulative impacts yet to be observed, requires additional caution in the monetary policy action and flexibility to incorporate data that impact the inflation outlook,” they said.Brazilian central bankers have raised borrowing costs by 4.25 percentage points since September as inflation is seen above the 3% target through 2028. Consumer prices have been pressured by expensive services and food, with demand underpinned by a strong labor market. Still, economists surveyed by the monetary authority have lowered their 2025 year-end interest rate estimates as US President Donald Trump’s trade tariffs weigh on global growth.“They want flexibility for the next decision in light of heightened uncertainty,” said Roberto Secemski, a Brazil economist at Barclays Plc. “They opted to leave the door open for either no hike or 25 basis points in June.”Brazil’s decision came hours after the US Federal Reserve held its own borrowing costs steady, with Chair Jerome Powell saying officials are not in a hurry to adjust interest rates.“The May 7 rate hike by Brazil’s central bank’s will likely be the last. Although policymakers didn’t say so explicitly, the language about next moves and the tight policy stance are consistent with a pause or — more likely, in our opinion — the end of the current cycle,” Adriana Dupita, Brazil and Argentina economist, said.
Trump’s trade policies have prompted the real to appreciate over the past month and also tamped down global commodity prices, two trends that help Brazil central bankers’ inflation fight. At the same time, there are some signs of a local economic slowdown, including weaker formal job creation in March.‘Prolonged Period’Still, annual inflation sped up to 5.48% in March, the highest level in roughly two years, according to data from the national statistics agency. Food and beverages drove price increases, climbing 1.17% on the month alone.In their statement, policymakers wrote that the current scenario continues to be marked by unanchored inflation expectations. Recent releases show both headline and underlying consumer price increases above target, they said.Central bankers said inflation will slow to 4.8% at the end of 2025 before hitting 3.6% in late 2026. Still, policymakers wrote that risks to their consumer price scenarios — both to the upside and to the downside — are higher than usual.“This scenario prescribes a significantly contractionary monetary policy for a prolonged period to assure the convergence of inflation to the target,” they wrote.For Fernando Genta, chief economist at XP Asset Management, odds are tilted toward a pause in the bank’s tightening cycle at the next meeting in June.On the economy, central bankers said Brazil’s labor market and overall activity have shown strength. At the same time, there’s an incipient moderation in growth, as well as doubts on the extent of the global slowdown.“They are keeping full optionality for the June meeting, given very limited improvement in the inflation forecast,” said Alberto Ramos, chief Latin America economist at Goldman Sachs & Co. LLC. “The signal is that they are likely not done.”
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