MNI BCB WATCH: Copom To Hold At 15% Amid Improving Outlook

The Central Bank of Brazil is broadly expected to maintain the Selic rate at 15% on Wednesday, as previously signaled, against a backdrop of easing inflation and improving expectations. This would mark the fourth consecutive hold.

All eyes are now on when the BCB might begin easing and whether it will keep the hawkish tone, with most expecting a cut in the first quarter of 2026, some in January, others in March.

The outlook has improved for the central bank, with inflation expectations falling across all projected horizons, including 2025, which could end around 4.5%, 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 4.55%, down from 4.80% four weeks earlier. For 2026, analysts now project 4.20% (from 4.28%), 3.80% for 2027 (from 3.90%), and 3.50% for 2028 (from 3.70%).

The Brazilian real has strengthened significantly this year, rising from around BRL 6 in December 2024 to trade at BRL 5.36 on Monday. The currency’s strength has been driven by a weaker dollar globally and the country’s high interest rates, which make it attractive to investors.

INFLATION DATA

Brazil's IPCA inflation was 5.17% in September, up from 5.13% in August. The increase was driven mainly by energy costs. On a monthly basis, consumer prices rose 0.48%, compared with a decline of 0.11% in the previous month.

Inflation has remained above the upper limit of the Central Bank of Brazil's 3% target range.

Former deputy governor for international affairs Alexandre Schwartsman told MNI in an interview the BCB is likely to hold its interest rate at 15.00% at least until the first quarter of 2026, when the board's inflation forecasts may start to show convergence toward the target. (See MNI INTERVIEW - BCB To Hold Rates Until Q1 2026 - Schwartsman)

Former Treasury Secretary Carlos Kawall said the BCB will begin cutting interest rates in January, though he added that the start of the easing cycle could be delayed if inflation does not ease further. (See MNI INTERVIEW: BCB January Rate Cut Likely, Can Delay - Kawall)

Former BCB head of open market operations Sergio Goldenstein told MNI the central bank has shifted to a more cautious stance to preserve its credibility, and a rate cut in 2025 now appears unlikely. (See MNI INTERVIEW: BCB To Hold Until 2026 To Preserve Credibility)

U.S. TARIFF LIMITED EFFECTS

Regarding U.S. trade policy and the 50% tariff imposed on Brazil, former Ministry of Planning and Budget economic advisor Eduardo Velho stressed that the decline in exports to the United States was offset by sales to other markets, so the impact was quite limited. (See MNI INTERVIEW: BCB Could Deliver 50BP Cut In Jan, Velho Says)

He also highlighted that Brazil has managed to diversify its exports, increasing volumes to the Middle East, Argentina, and other OECD countries.

Recently, Brazilian President Luiz Inacio Lula da Silva and U.S. President Donald Trump have drawn closer, and the two countries are negotiating to reduce the trade tariff.