Brazil’s central bank hiked its benchmark interest rate on Wednesday to its highest level in nearly two decades, signaling a continued battle against persistent inflation and economic uncertainty. The move, which raises the Selic rate by 50 basis points to 14.75%, marks the sixth consecutive increase and the highest level since August 2006.
In a unanimous decision, the bank’s monetary policy committee (Copom) said the economic climate demands a “significantly contractionary monetary policy for a prolonged period” in order to steer inflation back toward its 3% target. The decision met market expectations, with 32 of 35 economists in a Reuters poll predicting the hike.
However, policymakers left the door open regarding the next steps, citing global volatility and the delayed effects of previous rate hikes. “The advanced stage of the current cycle and the cumulative impacts not yet observed require caution and flexibility,” Copom said in its statement.
Despite the aggressive rate hikes—totaling 425 basis points since September—the economy continues to show resilience, with strong labor market data and indicators of solid domestic activity. Annual inflation stands at 5.49%, well above target, and markets remain doubtful it will fall within range before 2028.
The central bank also revised its inflation forecast, projecting a decline to 4.8% in 2025 (from 5.1%) and expecting it to hit 3.6% by the fourth quarter of 2026.
Some economists see a potential pause in the tightening cycle as early as June. Flavio Serrano, chief economist at BMG Bank, said a rate hold at 14.75% is the most likely outcome next month, though a cut could be considered by year-end if conditions allow. “There may be room for a cut at the very end of the year, depending on how the outlook evolves,” he said.
Global dynamics are also weighing heavily on the bank’s outlook. While U.S. interest rates held steady on the same day, concerns over global inflation and U.S. trade tensions add to the cautious stance. At the same time, a stronger Brazilian real and easing commodity prices may help ease inflationary pressure in the near term.
Still, the central bank remains wary. While some disinflationary trends are emerging globally, the Lula administration’s recent economic stimulus efforts—including looser credit rules—have added a new layer of domestic uncertainty. Analysts are watching closely to see whether these fiscal moves could undercut the bank’s monetary tightening strategy.
