MNI WATCH: BCB To Hold Rates At 15% Amid 50% Tariff Concerns

The Central Bank of Brazil is expected to keep its official Selic rate on hold at 15% Wednesday, as previously signaled, despite increasing uncertainty around U.S. trade policy with the imposition of a 50% tariff starting August 1.

At its last meeting, the board indicated that its 25-basis-point interest rate hike likely marked the end of the tightening cycle, barring an unforeseen worsening of inflation — which has not been observed so far.

"If the expected scenario materializes, the Committee foresees an interruption of the rate-hiking cycle to examine its yet-to-be-seen cumulative impacts, and then evaluate whether the current interest rate level, assuming it remains stable for a very prolonged period, will be enough to ensure the convergence of inflation to the target," the statement said.

INFLATION DATA

Brazil's IPCA inflation stood at 5.35% in June, slightly up from 5.32% in May. The data has remained above the upper limit of the BCB's 3% target range for six consecutive months, prompting the central bank to publish a letter explaining the deviation. In the letter, the bank said it expects inflation to return to the target range — which allows a 1.5 percentage point deviation in either direction — in the first quarter of 2026.

According to the BCB’s Focus market survey, inflation is expected to end the year at 5.10%. Expectations remain unanchored over longer horizons, with forecasts at 4.45% for 2026, 4.00% for 2027, and 3.80% for 2028.

Analysts expect the Selic rate to remain at 15% this year before gradually falling to 12.50% in 2026 and reaching 10% in 2028.

2025 CUT LIKELY

Former BCB deputy governor for economic policy Fabio Kanczuk told MNI in an interview that Copom is signaling it has no intention of hiking rates again in future meetings and is likely to start cutting them at the end of this year, especially if inflation starts to fall and economic activity weakens. (See MNI INTERVIEW: No BCB Rate Hike Ahead, 2025 Cut Likely-Kanczuk)

Former deputy governor for international affairs Tony Volpon told MNI that the BCB is unlikely to change its plans due to the 50% trade tariff imposed by the United States, adding that the effects on the economy will depend on the outcome of the diplomatic response and whether or not there will be negotiations.  (See MNI INTERVIEW: No BCB Shift After U.S. 50% Tariffs - Volpon)

Also in an interview, former foreign trade secretary Welber Barral told MNI that Brazil should continue negotiating for better trade terms with the United States even if the announced 50% tariff takes effect on August 1, adding that Brazilian companies have already begun to feel the impact of the new measure even before its implementation. (See MNI INTERVIEW: Brazil Must Keep Negotiating On Tariffs -Barral)