Brazil's central bank raised interest rates by 100 basis points on Wednesday for the third consecutive time, sticking to previous guidance, and signaled a smaller rate hike at its next policy meeting as it monitors signs of an economic slowdown.
The bank's rate-setting committee, known as Copom, lifted the benchmark Selic rate to 14.25% — a level last seen in 2016 — in a unanimous decision, meeting the expectations of all 37 economists polled by Reuters.
"The Committee anticipates an adjustment of lower magnitude in the next meeting, if the scenario evolves as expected," policymakers wrote in a statement announcing their decision.
More than the widely expected rate hike, markets were focused on the central bank's message about its next steps, now seen fully in the hands of its new governor, Gabriel Galipolo.
Galipolo, a close ally of President Luiz Inacio Lula da Silva, took over in January from Roberto Campos Neto, who was a frequent target of criticism from the leftist leader.
In the two monetary policy meetings held under his leadership so far, Galipolo has closely followed guidance set in December, with Campos Neto at the helm, which had penciled in 200 basis points of tightening in this year's first quarter.
Attention has now centered on Galipolo's signals about bringing inflation back to target, as Lula grapples with low approval ratings and ramps up stimulus to spur consumption - at odds with the central bank's efforts to cool economic activity.
The Brazilian central bank decision came on the same day the U.S. Federal Reserve held rates steady, assessing the new administration's policies before moving ahead with lower borrowing costs.
Although Brazil's currency has gained more than 9% against the U.S. dollar so far this year, longer-term inflation expectations have continued to deteriorate, underscoring doubts about a sustained convergence toward the 3% official target.
Brazil's economic activity, which policymakers have been closely tracking for signs of a slowdown, weakened more than expected last quarter. However, early data from this year still showed some resilience, as central bank officials noted in recent remarks.
"The set of indicators on economic activity and labor market has been exhibiting strength, even though we observe signals that suggest an incipient moderation in growth," Copom said in its policy statement on Wednesday.
Reflecting updated economic conditions, the central bank lowered its 2025 inflation forecast to 5.1%, from 5.2% projected in January.
For the third quarter of 2026, the period most influenced by current monetary policy decisions, it now expects 12-month inflation of 3.9%, compared with a previous estimate of 4.0%.
