MNI BCB WATCH: Copom Set To Hold Rate At 15%, Eyes On Guidance

The Central Bank of Brazil is expected to keep the Selic rate at 15.00% on Wednesday, though a few analysts are betting on a 25 basis point cut as the board has not clearly indicated its next steps, reinforcing investor focus on any changes to the forward guidance. 

Brazil's central bank held rates at 15% last month and said the strategy of maintaining policy steady for a “very prolonged period” is “appropriate”, keeping a hawkish tone that included a renewed warning that it would not hesitate to hike again if necessary.

Former BCB Deputy Governor for Economic Policy Fabio Kanczuk told MNI in an interview that the central bank has gradually distanced its communication from determinants such as the de-anchoring of inflation expectations and a dynamic labor market, thus being ready to cut but still tending to follow the yield curve. (See MNI INTERVIEW: BCB To Hold Rates At 15%, Cut In March -Kanczuk)

He believes that Copom will hold rates for now and start the easing cycle in March with a 25bp move.

Former Deputy Governor for International Affairs Tony Volpon agrees the BCB might hold this week and cut in March, adding that the magnitude of the looming easing cycle will be closely linked to fiscal policy as the country heads into national elections. (See MNI INTERVIEW: BCB To Hold Until March, Fiscal Policy Key)

CONDITIONS RIPE FOR CUT

In contrast, Former Deputy Governor for Monetary Policy Reinaldo Le Grazie believes the BCB could still cut interest rates by a quarter percentage point this week despite a more hawkish-than-expected policy statement last meeting, because economic conditions and the central bank's own forecasts are consistent with lower borrowing costs. (See MNI INTERVIEW: BCB January Cut Still On The Table - Le Grazie)

The outlook has improved for the central bank, with inflation expectations falling in the short term and current inflation ending 2025 at 4.26%, within the tolerance band of the 3% target that allows a variation of 1.5 percentage points up or down. According to the BCB’s Focus market survey, inflation is expected to end 2026 at 4.00%, down from 4.05% four weeks earlier. For 2027, analysts project 3.80%, and 3.50% from 2028 onward.

Brazil’s IPCA inflation was 4.26% in December, down from 4.46% in November. On a monthly basis, consumer prices rose 0.33%, compared with 0.18% in the previous month, driven by higher airfares.