Brazil’s central bank raises Selic rate to 15.00% amid inflation concerns

Investing.com -- Brazil’s central bank (Copom) raised its benchmark Selic interest rate by 0.25 percentage points to 15.00% on Wednesday.

The rate hike comes as inflation expectations for 2025 and 2026 collected by the Focus survey remain above the inflation target, standing at 5.2% and 4.5% respectively. Copom’s inflation projections for 2026, which is currently the relevant horizon for monetary policy, stand at 3.6% in their reference scenario.

In its statement, the central bank cited an adverse and uncertain global environment, particularly related to U.S. economic policy and outlook. The committee noted that global asset volatility has altered financial conditions, requiring caution from emerging market economies amid escalating geopolitical tensions.

On the domestic front, Copom observed that economic activity and labor market indicators continue to show strength, though with some moderation in growth. Recent data shows headline inflation and underlying inflation measures remaining above the inflation target.

The committee identified several upside risks to inflation, including a prolonged period of deanchored inflation expectations, stronger-than-expected resilience in services inflation due to a positive output gap, and economic policies with stronger-than-expected inflationary impact.

Downside risks include a greater-than-projected economic slowdown, a steeper global slowdown from trade shocks, and potential reduction in commodity prices with disinflationary effects.

Copom stated that ensuring inflation convergence to the target "requires a significantly contractionary monetary policy for a very prolonged period" given the current environment of deanchored expectations, high inflation projections, economic resilience, and labor market pressures.

The committee indicated it may pause the rate hiking cycle to evaluate the cumulative impacts of its policy actions, assessing whether the current interest rate level, if maintained for an extended period, will be sufficient to bring inflation back to target. However, Copom emphasized it "will not hesitate to proceed with the rate hiking cycle if appropriate."

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