After BC keeps Selic at 15% for the 4th time in a row, analysts are divided on the start of the reduction cycle

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In the statement, British Columbia made very specific adjustments and avoided any signals about the start of interest rate cuts, but reduced the official inflation projection over the horizon over which it is striving to achieve the target from 3.3% to 3.2% — closer to the target, 3%.

“The current scenario, marked by high uncertainty, requires prudence in the conduct of monetary policy. The Committee considers that the current strategy, consisting of maintaining the current level of interest rates for a very long period, is adequate to ensure the convergence of inflation towards the objective. The Committee emphasizes that it will remain vigilant, that future monetary policy measures may be adjusted and that, as usual, it will not hesitate to resume the adjustment cycle if it deems it appropriate.

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In the message, Copom highlighted that the strategy of maintaining the Selic for a “fairly prolonged” period is already underway, which corroborates the recent statement by BC President Gabriel Galípolo that the signaling does not “reset” at each meeting. Earlier this month, he said he saw no need to create “a communications code” to indicate next steps.

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The decision was expected by most of the financial market. According to a study by Valor Pro, 110 of the 112 financial institutions consulted expected rates to remain stable, while two institutions predicted a decline of 0.25 percentage points, to 14.75% per year. For the start of the interest decline, there is a division between January and March.

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Santander Brazil’s head of monetary policy and markets, Marco Caruso, sees “advances” in BC’s communication towards a more favorable stance on lowering interest rates. He cited as an example the swapping of the term “sufficient” for “adequate” to describe the strategy of maintaining interest rates for a “fairly prolonged” period. Santander forecasts a drop of 0.50 percentage points, to 14.50%, at the first meeting in 2026.

— We need to know where the exchange rate will be set. March looks more comfortable, but I don’t think January is out of the question, Caruso says.

Rafaela Vitória, chief economist of Banco Inter, maintains the forecast for the start of a drop in interest rates for January, but depending on a positive evolution of the scenario:

— We expect inflation to fall further in the coming months, with activity slowing, which should pave the way for reductions that could begin in early 2026.

Vitória believes, however, that the political-fiscal risk could affect this movement. And he says the income tax exemption for those earning up to R$5,000 and the expansion of targeted credit could revive demand and fuel inflation, delaying the start of cuts.

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Natalie Victal, chief economist of SulAmérica Investimentos, believes that this statement is more compatible with a reduction in the Selic in March, “given the absence of a more explicit signal for an immediate decline.”

Financial planner and partner at The Hill Capital Marcelo Bolzan says that, based on the tone of the statement, Selic is expected to stay at 15% longer than initially expected.

— Copom does not indicate the possibility of lowering interest rates in January, leaving this hypothesis for later, — he said. — At the next meeting, the commission will have to adjust the speech and explain why a possible reduction would be postponed until later, possibly in March.

He believes that this firmer tone should be felt when the markets open this Thursday.

— We had a slowdown in GDP and today’s IPCA was lower than expected. 12-month inflation is at the target ceiling. We were in a constructive environment for a reduction in January, but the declaration removes that possibility. Tomorrow could be a hangover day.

For the National Confederation of Industry (CNI), high interest rates will lead to a slowdown in gross domestic product (GDP) next year. The entity forecasts growth of 1.8%, lower than the 2.5% estimated for 2025. The CNI estimates that the Selic will end the year 2026 at 12% per year, with real interest rates around 7.9% — a level considered high and sufficient to inhibit investments and slow down economic activity.

In the release, British Columbia updated its official inflation projections, with a decline across all horizons. During the period in which it is working to bring inflation back to target, the second quarter of 2027, the reduction fell from 3.3% to 3.2%. We also note a drop in the projections for 2025, which return to the target range (from 1.5% to 4.5%), going from 4.6% to 4.4%, and for 2026, from 3.6% to 3.5%.

But in analyzing the situation, British Columbia reiterated that the scenario continued “marked by unanchored expectations, high inflation projections, resilient economic activity and labor market pressures.”

The BC acknowledged that the latest inflation data showed “some cooling”, but judged that both the general index and the underlying measures, which indicate the trend, “remained above the target”. The November IPCA was 4.46%, within the target maximum limit, which has not occurred since September 2024.

Regarding the slowdown in GDP, which increased by only 0.1% in the third quarter, Copom reported that it is in line with expectations. As for the labor market, it has changed its classification from dynamic to resilient. The unemployment rate reached a historic low: in the quarter ended in October, it was 5.4%.

In the external scenario, the BC once again recommended caution to emerging countries in the face of the uncertainty caused by the situation and the economic policy of the United States.

Copom also reiterated that it continues to closely monitor the trade conflict with the United States and domestic fiscal policy. For British Columbia, these factors reinforce its cautious stance. (Bruna Lessa and Roberto Malfacini collaborated)