MNI BCB WATCH: Copom Steady At 15%, Guidance On Cuts In Focus

The Central Bank of Brazil looks set to keep the Selic rate at 15% Wednesday, as previously signaled, with market participants searching for clues in its guidance about when the board might begin cutting.

Some analysts believe the easing cycle could start as soon as January, while others expect the first move in March. If they intend to cut next month, they would likely signal it in this decision.

BCB has kept interest rates at 15% since June, saying that rates need to remain restrictive for a “very prolonged period,” without specifying exactly how long.

Governor Gabriel Galipolo said last week that the term “very prolonged” used in its forward guidance does not “reset” at each meeting, "it’s a period that is still happening."

IMPROVING OUTLOOK

The outlook has improved for the central bank, with inflation expectations falling across all projected horizons, including 2025, which after several downward revisions might end 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 the year at 4.40%, down from 4.55% four weeks earlier. For 2026, analysts now project 4.16% (from 4.20%), 3.80% for 2027, and 3.50% for 2028.

The Brazilian real has strengthened significantly this year, rising from around BRL 6 in December 2024 to trade at BRL 5.44 on Monday. The currency’s strength has been driven by a weaker dollar globally and the Brazil’s high interest rates, making it attractive to investors.

INFLATION DATA

Brazil's IPCA inflation was 4.68% in October, down from 5.17% in September. On a monthly basis, consumer prices rose 0.09%, compared with 0.48% in the previous month. This was the lowest outcome for the month of October since 1998, when it stood at 0.02%.

Even after improving, inflation has remained above the upper limit of the Central Bank of Brazil's 3% target range.

Former BCB deputy governor for monetary policy Luiz Fernando Figueiredo told MNI in an interview that BCB is likely to begin its easing cycle by cutting 25 basis points in January, though it could postpone to March if data is unfavorable.  (See MNI INTERVIEW: BCB To Start Cuts In January - Figueiredo)