BC Disagrees With Fed, Ignores Falling Inflation, Holds Interest Rates
In a statement, British Columbia threatened to resume a cycle of rising interest rates, ignoring financial market analyzes that inflation is falling.
By Marcos de Oliveira, in Monitor Mercantil
The Monetary Policy Committee (Copom) of the Central Bank decided to maintain the Selic interest rate at 15% per year.
In their statement after the meeting, the BC leaders, led by Gabriel Galípolo, said that the Committee “believes that the current strategy, which consists of maintaining the current level of interest rates for a very long period, is adequate to ensure the convergence of inflation towards the target.”
They then emphasize that the Committee “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.”
In the declarationthe BC also informs that “the inflation expectations for 2025 and 2026 calculated by the Focus survey remain above the objective, standing at 4.4% and 4.2% respectively.”
The Central Bank, however, ignored that the objective (3% in 2025 and 2026) allows a range of 1.5 percentage points more or less, or between 1.5% and 4.5%. The financial market’s own expectations therefore suggest inflation within the target range.
The reduction in interest rates by the Open Market Committee (Fomc) of the Federal Reserve (Fed, the American Central Bank), by 0.25 percentage points, to a range between 3.5% and 3.75%, makes the position of the Brazilian Central Bank even more indefensible.
Danilo Igliori, chief economist at Nomad, explains that the Fed attributed the decision to signs of a weakening of the labor market in September and a slowdown in activity, despite the relative invisibility of October data, due to the period of US government shutdown.
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This decline also occurs even if American inflation remains far from the objective. In addition to reducing interest rates, the Fed announced the purchase of short-term Treasury bonds starting this Thursday, as part of another measure to stimulate the economy less expected by the market.
In Brazil, job growth and the economy are also showing signs of slowing. On the other hand, inflation fell below the target ceiling (4.5%) pursued by British Columbia. Sara Paixão, macroeconomic analyst at InvestSmart XP, highlights that the November IPCA surprised positively by recording an increase of 0.18%, below the projection of 0.20%.
“Despite a more benign comprehensive index, the opening showed an advance in diffusion, which indicates that the price increase reached a greater part of the items in the basket,” emphasizes Paixão. Core inflation rose 0.23% over the month, slightly above economists’ estimate of 0.21%.
“The Brazilian inflation scenario continues to evolve towards the end of 2025 at a more favorable level and, according to estimates, within the range of the Central Bank’s objective. The recent slowdown was favored mainly by the drop in food raw materials, explains the analyst.
Ariane Benedito, chief economist at PicPay, reports that the IPCA recorded an increase of 0.18% in November, accelerating compared to the 0.09% observed in October, but remaining in a benign inflation scenario. Over a 12-month period, the index fell from 4.68% to 4.46%, “a move influenced by both the higher December 2024 base and continued disinflation in important groups.”
“The composition of the index reinforced a favorable qualitative reading. Services inflation remained under control, with the exception of accommodation, which increased in an atypical manner due to COP 30 in Belém, a temporary shock, with no structural implications on the prospective trajectory,” explains the economist.
She sees diffusion at a moderate level, even with an increase from 52% to 56% during the month, indicating that pressures remain concentrated in a few positions and do not suggest a wider spread of inflation.
“We maintain a constructive reading in the short term, projecting a 0.46% rise for the December IPCA and revising our closing estimate for 2025 to 4.40%, reflecting the bearish surprise of the cores, the continuation of the deflation of the domestic food, the favorable behavior of industrial goods and the loss of strength of the underlying services, factors which support the gradual and constant convergence of inflation throughout the year”, concludes Ariane Benedito.
Christmas gift to speculators
“By maintaining the base interest rate (Selic rate) at 15% per year, Copom (Economic Policy Committee of the Central Bank) demonstrates that it continues to bow to speculators, who have received a Christmas present,” attacked Força Sindical.
“Unfortunately, we live in the era of exorbitant interest rates. The current base interest rate is stifling the economy and consumption and harming wage campaigns for the second half of 2025. We urgently need a reduction in interest rates so that economic activity can continue. Maintaining the current interest rate constitutes a significant obstacle to the development of the country,” continues the note from the central union.
“Even with the changes within Copom, its members unfortunately continue to bow to speculators and turn their backs on the working class. We will continue to protest against exorbitant interest rates, which go against the development of the country.”
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