Brazil Central Bank Expected to Hike Interest Rates to 14.25% on March 19

Brazil’s central bank is projected to increase the benchmark interest rate to 14.25% on March 19, amid efforts to control inflation. Limited forward guidance is expected in the upcoming policy statement, with economists predicting further hikes in May. The Selic rate is anticipated to peak at 15.25% in Q3 before gradually declining by 2026.

Brazil’s central bank is anticipated to raise its benchmark interest rate to 14.25% on March 19, marking a near decade-high. According to a Reuters poll, the monetary policy committee, known as Copom, is expected to implement a 100 basis points increase, continuing the current tightening cycle with three consecutive hikes of the same magnitude. This decision comes under the leadership of recently appointed governor Gabriel Galipolo, who has adopted a stringent approach to combat rising inflation amid recent government measures addressing economic challenges.

Despite the routine nature of these hikes, next week’s policy statement is expected to provide limited guidance on future monetary policy due to mixed economic signals. Copom’s forthcoming decision would raise the Selic rate to its highest level since September 2016. Economists project a slower adjustment pace at the upcoming May meeting, without firm commitments for subsequent changes.

Current economic data indicate a prevailing slowdown which might aid in reducing inflation, which was recorded at 5.06% last month – the fastest rate in over a year. Analysts express concern regarding the uncertainties brought about by U.S. President Donald Trump’s tariff policies, which affect both the monetary landscape and Brazil’s bilateral trade dynamics.

An overwhelming majority of analysts, 20 out of 22, predict an additional rate increase in May following Copom’s April recess after this month’s hike. Predictions for the May increase vary, with some forecasting a half-percentage point increase, while others estimate hikes of 75 or 100 basis points. The Selic rate is expected to peak at 15.25% in the third quarter, the highest since June 2006, before gradually declining to 15.00% by the end of 2025 and further to 12.50% in 2026.

Experts do not foresee new guidance from the central bank on March 19 but note that conditions may allow for a moderated pace of rate increases in the future, reflecting evolving economic realities.

In summary, Brazil’s central bank is set to raise the Selic rate to a near-high of 14.25% as part of ongoing efforts to manage inflation amidst mixed economic indicators. Analysts expect further increases in May, with varied predictions on the magnitude of those hikes. The economic outlook contemplates a potential slowdown in rate increases in the future. Furthermore, the impact of external factors, such as U.S. trade policies, continues to contribute to economic uncertainty.

Original Source: www.marketscreener.com