Central Bank holds fire in December

BCB keeps rates at near two-decade high: At its meeting on 9–10 December, the Monetary Policy Committee (COPOM) of the Central Bank of Brazil (BCB) held its SELIC rate at 15.00% for the fourth consecutive meeting—the highest level since July 2006. The decision was again unanimous, had been priced in by markets and followed 450 basis points of increases in September 2024–June 2025.

Highly uncertain times call for continued caution: In justifying its hold, the Bank pointed to a “highly uncertain” economic outlook and stubbornly above-target inflation. Regarding uncertainty, the COPOM said that it continues to monitor geopolitical tensions and changes in U.S. policies—namely tariffs on Brazilian goods—and their impact on Brazil’s economy. The impact of domestic fiscal policy is another point of uncertainty. Turning to price pressures, both headline and underlying inflation showed some improvement through October but still remained above the BCB’s 1.5–4.5% target band. Moreover, inflation expectations for the upcoming years have stayed above the midpoint of the target band, despite marginally improving to 3.5% and 3.2% for 2026 and Q2 2027 from those recorded at the prior meeting in early November. Meanwhile, the BCB noted that it expects economic growth to moderate ahead, suggesting it’s making progress in cooling the economy. That said, the labor market remains resilient, dissuading an interest rate reduction.

Rate cuts not in sight: Echoing the tone in its September and November meetings, the Central Bank said that the anchoring of inflation expectations “requires a significantly contractionary monetary policy for a very prolonged period”. The BCB emphasized its openness to hiking rates further if necessary. Still, virtually all of our panelists expect the BCB to initiate its easing cycle in Q1 2026 as inflation eases to the target band; overall in 2026, around 275 basis points of reductions are expected. The COPOM will reconvene on 27–28 January.

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