Faced with growing criticism from the government of Luiz Inácio Lula da Silva, the Monetary Policy Committee (Copom) of the Central Bank decided to maintain the Selic rate at 15% per year, the highest level in almost 20 years, since July 2006. This is the fourth consecutive meeting in which the Copom opts for the stability of basic interest rates in the Brazilian economy.
In the statement, the BC made very specific adjustments and avoided any signal on the start of the interest rate cut, but reduced the official inflation projection over the horizon on which Copom is working to reach the target from 3.3% to 3.2% – closer to the 3.0% target.
“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 steps of monetary policy may be adjusted and that, as usual, it will not hesitate to resume the adjustment cycle if it deems it appropriate.
In the message, the BC highlighted that the strategy of maintaining the Selic for a “fairly prolonged” period is already underway, which corroborates the recent statement by the president of the monetary authority, Gabriel Galípolo, that the signal does not “reset” at each meeting. Earlier this month, Galípolo said he did not see the need to create “a communications code” to indicate Copom’s next actions. In this context, he noted that it was not necessary to remove the phrase “fairly prolonged” to begin a cycle of falling interest rates.
Furthermore, during the previous meeting, in November, the BC declared that the maintenance strategy for a “very prolonged period” was “sufficient” to ensure the convergence of inflation towards the objective, which it now considers “adequate”.
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This Wednesday’s decision was expected by most of the financial market. According to a study by Valor Pro, 110 of the 112 financial institutions consulted predicted stability in rates during Copom this Wednesday, while two chambers expected a drop 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.
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 (1.5% to 4.5%), going from 4.6% to 4.4%, and for 2026, from 3.6% to 3.5%.
However, in its analysis of the situation, the BC made marginal remarks on improving inflation and activity indicators and reiterated that the scenario “continues to be marked by unanchored expectations, high inflation projections, resilience of economic activity and labor market pressures.”
“To ensure inflation converges towards target in an environment of unanchored expectations, monetary policy at a level of significant contraction for a very long period is necessary.”
Regarding current inflation, the monetary authority stressed that it continued to show “some cooling” in the latest publications, but considered that both the general index and the underlying measures, which indicate the trend, “remain above the target”. This Wednesday, the IPCA result for the month of November is within the target range (1.5% to 4.5%), at 4.46%. This has not happened since September 2024.
Regarding the slowdown in Gross Domestic Product (GDP), Copom reported that it is in line with expectations. GDP increased slightly by 0.1% in the third quarter. As for the labor market, it has changed its classification from dynamic to resilient. The unemployment rate hit an all-time low, reaching 5.4% in the quarter ended October.
“The set of indicators continues to show, as expected, a moderating trend in economic activity growth, as observed in the latest GDP release, while the labor market demonstrates resilience.”
Concerning the external scenario, the BC once again recommended caution to emerging countries in the face of the uncertainty caused by the economic situation and policy of the United States, with repercussions on global financial conditions. This careful assessment takes place on the same day that the Federal Reserve (American central bank) once again reduced American interest rates.
Copom also reiterated that it continues to monitor announcements regarding the imposition of tariffs by the United States on Brazil, as well as developments in domestic fiscal policy and their impacts on monetary policy and financial assets. For British Columbia, this reinforces its cautious stance in a scenario of greater uncertainty.
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