Brazil’s central bank has held its benchmark interest rate at 13.75 per cent, bringing a sequence of five consecutive cuts to a pause as policymakers weigh higher inflation expectations against a slowing economy.
The monetary policy committee, known as Copom, made the decision on 4 November. The rate applies from 5 November. All seven members who voted supported keeping the Selic unchanged.
The decision leaves the rate where it stood after September’s quarter-point reduction from 14 per cent. The easing cycle began in March, when the benchmark was 15 per cent. Five reductions of 0.25 percentage points each brought it to its current level.
The pause is not a commitment to raise rates or to resume cutting them at the next meeting. The committee said it would continue to monitor developments and maintain an appropriate degree of monetary restriction to bring inflation towards its target.
Forecasts move further from target
The bank said inflation expectations collected in its Focus survey had moved further away from the target since its previous meeting. Survey expectations stood at 5.2 per cent for 2026 and 4.8 per cent for 2027, compared with an official inflation target of 3 per cent.
Those survey figures are expectations, not measurements of inflation that has already occurred. They are also separate from the committee’s own forecasts. In its reference scenario, Copom projected inflation of 5.6 per cent for 2026 and 4.7 per cent for 2027.
For the second quarter of 2028, the committee’s current policy horizon, it projected inflation of 3.5 per cent over the preceding four quarters. That forecast uses an interest-rate path drawn from the Focus survey and depends on other assumptions, including those for the exchange rate and oil prices. It is not a guarantee of the eventual outcome.
Policymakers said the most recent readings of headline inflation and the average of underlying measures had accelerated and were above the upper limit of the target’s tolerance range. Underlying measures are intended to help assess price pressures beyond short-term fluctuations in individual items.
Activity slows while risks remain
The committee described a more pronounced moderation in domestic economic activity since its last meeting, especially in sectors more sensitive to the economic cycle. It said the labour market remained resilient but was showing some signs of cooling.
At the same time, the bank judged that risks to inflation in either direction remained higher than usual, with the balance tilted upwards. It pointed to the possibility that elevated inflation expectations could persist, that services prices could prove more resistant to slowing, and that economic policies or a weaker currency could add to price pressures.
The bank also identified risks that could pull inflation lower, including a sharper domestic or global slowdown and a fall in commodity prices. It said it was watching how developments in domestic fiscal policy might affect monetary policy and financial assets.
International conditions had become more adverse, the committee said, citing prolonged conflict in the Middle East and its effects on oil and refined-fuel prices, alongside tighter monetary policy in advanced economies. Those are the committee’s assessment of the pressures it faces, not a prediction that any particular risk will materialise.
Borrowing costs remain a concern
The Selic is the central bank’s main policy rate and influences financial conditions across the economy. Keeping it high can help restrain demand and inflation, but borrowing costs can also weigh on spending and investment. The rate a household or business pays depends on its lender, product and contract; an unchanged benchmark does not mean every loan rate will stay fixed.
The National Confederation of Industry criticised the decision as excessively conservative. Its president, Ricardo Alban, argued that high rates make credit more expensive and affect investment and economic activity. He called for cuts to resume at the next meeting.
The central bank’s next scheduled policy meeting is on 8 and 9 December, with the decision due on 9 December. Until then, the committee’s latest statement leaves the direction of the next move open.
Featured image: AI-generated illustration.
