Brazil: Central Bank in March delivers third 100 basis point increase
Central Bank sticks to previously announced forward guidance: At its 18–19 March meeting, the Monetary Policy Committee (COPOM) of the Central Bank of Brazil (BCB) increased its SELIC rate by 100 basis points to 14.25%. This marked the third consecutive 100 basis point rise, and brought the cumulative hikes to 375 basis points since September 2024. The decision was again unanimous and had been priced in by markets as the BCB stuck to the forward guidance from its December meeting.
Stubbornly high inflation motivates aggressive tightening: The key driver of the hike was above-target price pressures; both headline and core inflation have trended upward since H2 2024, the former exceeding the Bank’s 1.5–4.5% tolerance band for the fifth straight month in February.
The BCB’s 2025 inflation projections improved marginally to 5.1% from 5.2% at its latest meeting; despite the downtick, the metric remains notably above the Bank’s tolerance band. Additionally, inflation expectations de-anchored further recently.
Pace of tightening cycle to slow ahead: The Central Bank’s forward guidance indicated a smaller increase at the next meeting, scheduled for 6–7 May. Our Consensus is for the Central Bank to increase its SELIC rate further in Q2 before reducing it slightly by December. The government’s fiscal policy remains a key factor to monitor due to its effect on domestic demand.