MNI WATCH: Brazil's Copom To Hike 50BP, Cycle Nearing Its End

The Central Bank of Brazil is expected to hike its official Selic rate by 50 basis points to 14.75% Wednesday, the sixth consecutive increase and the highest level since July 2006, with investors looking for clues on next moves as the tightening cycle nears its end.

The Monetary Policy Committee (Copom) raised interest rates by 100 basis points in March to 14.25% and signaled a smaller hike in May, leaving open the possibility of 75, 50, or 25 basis points. In recent public communication, board members reinforced that all options remain on the table and did not point to any specific one.

Last week, BCB Governor Gabriel Galipolo said that monetary policy is reaching a very restrictive level, but the board is still assessing whether it will be contractionary enough to bring inflation to the target.

According to the BCB Focus market survey, inflation is expected to end the year at 5.53%, exceeding the upper limit of the 3% target tolerance range, which allows for a maximum of 4.5%. Expectations remain unanchored over longer horizons, with forecasts at 4.51% for 2026, 4.00% for 2027, and 3.80% for 2028.

Analysts expect the Selic rate to rise to 14.75% this year and then fall to 12.50% next year, reaching 10% in 2028.

Former Central Bank of Brazil deputy governor for monetary policy Bruno Serra told MNI in an interview that the BCB is likely to hike by 50 basis points now, while the June meeting remains "open," with a possible final tightening move of 25 basis points. (See MNI INTERVIEW: BCB Might Cut Sooner as Activity Slows - Serra)

He also said that Brazil’s economy is likely to weaken more sharply than expected, dampening inflation and possibly prompting a shift to rate cuts by the end of this year or early 2026.

Former BCB deputy for monetary policy Luiz Fernando Figueiredo also said in an interview that a 50 basis point hike is more likely at this meeting and noted that the tightening cycle appears to be winding down. (See MNI INTERVIEW: Brazil's Hiking Cycle Nearing End - Figueiredo)