BRASÍLIA – On the eve of the last meeting of the year Monetary Policy Committee (Copom)it is practically unanimous on the market that the base rate of costs (Sélic) will be maintained at 15%, but the start of an interest rate reduction cycle is near.
However, proximity remains a point of doubt among economists and, faced with this uncertainty, eyes are turning to the collegiate’s communication, looking for signs of its next steps.
Despite this expectation, the tendency is for it to be another meeting without defining a plan forward-looking orientation (advice on future steps). The collegiate tends to make only marginal adjustments to communication to bring it into line with the most recent statements of its members. It must therefore reinforce a posture dependent on data and maintain a certain flexibility for subsequent decisions, analyze the economists consulted by Stage/Broadcast.
Until early last week, the prevailing market interpretation was that the Committee’s “arrow” for future decisions would be linked to the section that deals with maintaining interest rates at 15% for a “very prolonged period.”
However, the reading lost its strength after the president of the Central bank, Gabriel Galipoloclarified that the phrase is not “reset” at each new meeting, indicating that a change in messaging would not be necessary to begin a cycle of easing.
“It was clear that ‘fairly prolonged’ meant an integral and not at every meeting,” says the director of macroeconomics for Brazil at UBS GWM, Solange Srour, who foresees a greater probability of reductions starting in March or April.
She understands that the deletion or retention of the article would not constitute a mandatory indication of the Committee’s next steps and raises the possibility of a third option, in which Copom would make only one change to the sentence, by adjusting the verb tense.
For Srour, if the Committee is already considering reducing Selic in January, it is possible that it will add a message of parsimony and caution in the next steps. She points out, however, that it is more likely that this type of change will not occur until the next meeting.
He also notes that the scenario is evolving in accordance with Copom’s expectations, but that progress has been gradual, both in terms of inflation and the economy. With this, he believes that the college tends to “not want to create too many discussions, maintain more or less the same communication and wait another 45 days to see how the scenario evolves”.
Data dependence
The adoption by the monetary authority of communication increasingly dependent on data is the bet of the chief economist of XP Investimentos, Caio Megale, who foresees budget cuts from March.
He declared that during the current meeting he would be attentive to the evaluation of the improvement of the scenario. “Whether this slowdown and disinflation is more permanent and there is room to reduce interest rates or whether it is still too early and this improvement is not as significant,” he says. “I think there will be more on that second line, because that’s what Galípolo said publicly. He went along the lines that ‘it’s gotten better, but it’s gradual, slower and less intense than we would like’.”
Therefore, for Megale, December communication should always be focused on lowering expectations. However, if the scenario continues to evolve like this, the Committee should be more dependent on January data and subsequently reduce its expenditure in March, he adds.
Although he understands that it is possible for Copom to lower interest rates even if it maintains “a fairly long period” in the communication, the economist considers that an adjustment of the sentence could make sense, and cites for example the deletion of the term “quite a lot”.
Tendências Consultoria partner and senior economist Silvio Campos Neto predicts the cuts will begin in January, but says waiting until March “would not be out of the question.”
He believes that since the last meeting there has been an improvement in the economic scenario – in the disinflationary cycle, in the slowdown of activity and in the signs of a certain cooling of the labor market, although it still remains tense – and he considers it likely that these advances will be recognized, even if in a cautious position of the Commission, with subtle changes.
“He will not want to send a very clear message that, for example, in January he will reduce,” says Campos Neto, for whom market doubts about when the easing will begin should remain unresolved.
BTG Pactual’s base case also foresees that reductions begin in January, when the institution understands that the combination of more favorable inflation dynamics, lower activity and BC model projections converging towards the target at the relevant horizon will provide the necessary conditions for Copom to start easing, explains partner and economist Iana Ferrão.
She believes that, despite the projection, she does not expect an explicit sign of the movement in December either. “As much relevant data will still be released before the January decision, which will come at the end of the month, British Columbia must preserve this flexibility and avoid any commitment,” he says.
Ferrão believes that this is the right position to take by the municipality, given the environment of still high uncertainty, unanchored expectations, a more gradual slowdown in inflation than expected and a labor market still under pressure on wages. “The cost of being tied to a strong signal today and having to reverse it later is high.”
According to research Broadcast projectionsmost houses are planning Selic reductions from March (17 out of 35). Fourteen other institutions are planning cuts as early as January, and three institutions see interest rate reductions only starting in April. A consulted chamber foresees a reduction of 0.25 percentage points at the December meeting.
Between the meetings, the Focus median inflation for 2025 fell from 4.55% to a level below the inflation target ceiling – 4.50% – for the first time since December 2024. In the report published this Monday, it fell for the 4th time in a row, to 4.40%. The median for 2026 increased from 4.20% to 4.16% in the meantime.
The IPCA-15 accelerated to 0.20% in November, from 0.18% in October. The 12-month cumulative rate, however, decreased from 4.94% in October to 4.50%. As for economic activity, GDP growth slowed from 0.3% in the second quarter of 2025 (revised data, from 0.5%) to 0.1% in the third.
The Brazilian labor market recorded the creation of 85,147 new formal jobs in October, according to Caged data. The balance was 35.3% lower than that observed in the same month of 2024. The dollar exchange rate used in the committee’s reference scenario increased from R$5.40 to R$5.35.
About The Author
