Brazil Central Bank to Raise Interest Rates to Near Decade-High

Brazil’s central bank is set to raise its benchmark interest rate to 14.25% on March 19, reflecting a continued effort to combat inflation. Analysts anticipate further increases in May, with a peak forecast of 15.25% later this year. Future statements may indicate a slower adjustment pace due to mixed economic signals.

In a recent Reuters poll, it was indicated that Brazil’s central bank is poised to raise its benchmark interest rate to a near decade-high of 14.25% on March 19. This adjustment, which is part of the current tightening cycle, marks the third consecutive increase of 100 basis points. The decision reflects Banco Central do Brasil’s ongoing aggressive stance against rising inflation, particularly under the new leadership of Governor Gabriel Galipolo.

The monetary policy committee, known as Copom, is expected to deliver the rate hike without providing extensive forward guidance, given the mixed nature of recent economic data. The anticipated increase will bring the Selic rate to its highest level since September 2016. Economic conditions suggest a slowdown that could assist in lowering inflation, which recently reached 5.06%, the highest in over a year.

Despite uncertainties stemming from U.S. trade policies, the majority of analysts surveyed foresee additional rate increases following this month’s adjustment. Specifically, 20 out of 22 economists expected the Selic rate to rise again in May. Forecasts for the May meeting range from an increase of half a percentage point to a full percentage point, with a peak rate of 15.25% projected for the third quarter before a gradual decline begins.

Economists anticipate that following the March rate hike, future policy may adjust to a slower pace, signaling flexibility in the Banco Central’s approach. The general consensus indicates an end of 2025 rate at 15.00% and 12.50% for 2026, reflecting a cautious yet strategic monetary policy trajectory.

In conclusion, Brazil’s central bank is expected to increase the Selic rate to 14.25% on March 19, reflecting ongoing inflation concerns. Analysts predict subsequent rates will also rise, though future communications from the bank may suggest a deceleration in the pace of increases. The evolving economic landscape, including relevant international factors, continues to shape Brazil’s monetary policy decisions, with predictions indicating a potential easing in the coming years.

Original Source: money.usnews.com