By Marcela Ayres
BRASILIA (Reuters) – Brazil’s central bank raised interest rates by 100 basis points on Wednesday for the third consecutive time, sticking to previous guidance, and signaled a smaller rate hike at its next policy meeting as it monitors signs of an economic slowdown.
The bank’s rate-setting committee, known as Copom, lifted the benchmark Selic rate to 14.25% — a level last seen in 2016 — in a unanimous decision, meeting the expectations of all 37 economists polled by Reuters.
“The Committee anticipates an adjustment of lower magnitude in the next meeting, if the scenario evolves as expected,” policymakers wrote in a statement announcing their decision.
More than the widely expected rate hike, markets were focused on the central bank’s message about its next steps, now seen fully in the hands of its new governor, Gabriel Galipolo.
Flavio Serrano, chief economist at Banco BMG, said the central bank’s communication reinforced his view that the pace of monetary tightening would slow by half at the next meeting.
“We believe a 50-basis-point hike in May will be the final move of this tightening cycle,” he said. Galipolo, a close ally of President Luiz Inacio Lula da Silva, took over in January as the central bank chief from Roberto Campos Neto, who was a frequent target of criticism from the leftist president.
In the two monetary policy meetings held under his leadership so far, Galipolo has closely followed guidance set in December, when Campos Neto was at the helm, which had penciled in 200 basis points of tightening in this year’s first quarter.
Attention has now centered on Galipolo’s signals about bringing inflation back to target, as Lula grapples with low approval ratings and ramps up stimulus to spur consumption – at odds with the central bank’s efforts to cool economic activity.
The Brazilian central bank’s decision came on the same day the U.S. Federal Reserve held rates steady, assessing the new Trump administration’s policies before moving ahead with lower borrowing costs.
In its policy statement later on Wednesday, Brazil’s central bank said the global environment remains challenging due to U.S. economic policy and outlook, particularly the uncertainty surrounding trade policy and its effects.
Although Brazil’s currency has gained more than 9% against the U.S. dollar so far this year, longer-term inflation expectations have continued to deteriorate, underscoring doubts about a sustained convergence toward the 3% official target.
Brazil’s economic activity, which policymakers have been closely tracking for signs of a slowdown, weakened more than expected last quarter. However, early data from this year still showed some resilience, as central bank officials noted in recent remarks.
“The set of indicators on economic activity and labor market has been exhibiting strength, even though we observe signals that suggest an incipient moderation in growth,” Copom said in its policy statement on Wednesday.
Reflecting updated economic conditions, the central bank lowered its 2025 inflation forecast to 5.1%, from 5.2% projected in January.
For the third quarter of 2026, the period most influenced by current monetary policy decisions, it now expects 12-month inflation of 3.9%, compared with a previous estimate of 4.0%.
JP Morgan analysts noted the central bank made only slight changes to its inflation outlook, despite weaker-than-expected fourth-quarter growth and sharp currency appreciation, describing the statement as hawkish.
“We continue to expect two additional 50 basis-point hikes in the upcoming meetings in May and June, concluding the tightening cycle at 15.25%,” they wrote.
(Reporting by Marcela Ayres; Editing by Brad Haynes and Leslie Adler)
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