MNI BCB WATCH: Keeping 15.00% Rate For Longer Will Be Enough

The Central Bank of Brazil reiterated in its statement on Wednesday that its interest rate should be kept at 15% for a "prolonged period," this time asserting the strategy will be enough to bring inflation to the target.

BCB held its official Selic rate at 15% for a third time and slightly changed the wording in its forward guidance, now stating more forcefully that keeping the policy rate at its current level is sufficient to bring inflation to target within the relevant horizon, which is currently set as the second quarter of 2027.

In its previous decision in September, the board said it would continue evaluating whether the strategy would be enough. (See MNI BCB WATCH: Copom To Hold At 15% Amid Improving Outlook)

"The current scenario, marked by heightened uncertainty, requires a cautious stance in monetary policy. The Committee evaluates that maintaining the interest rate at its current level for a very prolonged period will be enough to ensure the convergence of inflation to the target," the statement said.

"The Committee emphasizes it will remain vigilant, that future monetary policy steps can be adjusted and that it will not hesitate to resume the rate hiking cycle if appropriate," officials added.

HAWKISH TONE

Even with the subtle change, which further distances the possibility of having to raise rates again, the tone of the statement remained hawkish, reinforcing that the interest rate should stay unchanged for longer. Thus, a rate cut in December becomes even more unlikely.

On a possibly dovish note, the BCB acknowledged in the statement that headline inflation and measures of underlying inflation "have shown some improvement" but remain above the inflation target.

"Regarding the domestic scenario, the set of indicators continues to show, as expected, a path of moderation on economic growth but the labor market is still showing strength," the statement said.

The Copom’s projection for the second quarter of 2027 fell to 3.3% from 3.4%. "Ensuring the convergence of inflation to the target in an environment with deanchored expectations requires a significantly contractionary monetary policy for a very prolonged period," BCB said.

The outlook has improved for the central bank, with inflation expectations falling across all projected horizons, including 2025, which could end at 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%).